Financial services reform continues to unfold, with two pieces of legislation being sent to Capitol Hill in July aimed at protecting investors–the first establishing a Consumer Financial Protection Agency (CFPA) and the other, the Investor Protection Act of 2009, which would strengthen the Securities and Exchange Commission’s (SEC) authority.
Much debate is already taking place concerning the CFPA, with many questioning how this new agency would interact with other regulators. Under the proposed legislation, quite a broad range of products would fall under the CFPA’s jurisdiction, namely banking products, mortgages, and credit cards. But it looks as though mutual funds will be kept under the SEC’s purview. Michael Barr, assistant Treasury secretary for financial institutions, told reporters on a July 10 conference call that additional pieces of the Administration’s financial services reform plan would be released “in the coming weeks,” including more items affecting the SEC. Some of those reform plans were released in mid-July, including requiring all advisors to hedge funds and other private pools of capital, including private equity and venture capital funds, to register with the SEC.
Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, introduced a bill in mid-July, H.R. 3126, that formally includes the Obama Administration’s proposal to create the CFPA. Frank hopes to mark up the bill by the end of July with approval likely before the August 7 recess. While Frank said there’s a “great deal of common ground” between his bill and President Obama’s, Frank’s bill preserves the current federal banking regulators’ role to enforce the Community Reinvestment Act (CRA). In addition, Frank said “the Administration’s proposal presupposes the creation of the National Bank Supervisory (NBS), a new prudential regulator that would merge the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). While this is consistent with the Administration’s goals for regulatory restructuring, these considerations will be done at a later date. Accordingly, the introduced bill makes references to the OCC and OTS, instead of the NBS.”
During a July 14 hearing that Frank’s committee held on the CFPA, the Congressman said it was time to create such a “consumer watchdog” because other regulators have let consumer protections fall by the wayside.
Make or Enforce the Law?
But other members of Frank’s committee questioned whether the CFPA would be a law enforcement agency or a law-making agency that could preempt Congress. Elizabeth Warren, chair of the Congressional Oversight Panel and the Leo Gottlieb Professor of Law at Harvard University, assured lawmakers at the hearing that Congress “will set the standards” for the CFPA and the agency, if established, will put these into force.