The Proposed Consumer Financial Protection Agency, Jennifer Martin

A Consumer Financial Protection Agency has been put forth as one of the proposals to address regulatory deficiencies that allowed of institutions offering those selling consumer financial products to overreach. Professor Jennifer Martin looks at the proposed legislation to create a new federal consumer protection agency.
Professor Martin writes: As the current economic crisis eases, we now turn to the underlying causes and the role that home foreclosures and consumer credit defaults have played. In some cases, the unwise decisions of consumers have been compounded by overreaching of those selling consumer financial products. One of the proposals to address regulatory deficiencies that allowed such overreaching is the creation of a Consumer Financial Protection Agency. This Emerging Issues Analysis looks at the proposed legislation to create a new federal consumer protection agency.

Attempt to Correct Regulatory Deficiencies

While the causes of the current recession are many, consumer spending, particularly purchases made on credit, have played a substantial role. Home foreclosures and credit card defaults affect us all with housing values tied to the overall markets and banks raising card rates on many non-defaulting customers to help cover losses on those who cannot pay. Moreover, with high unemployment persisting and homes loans that are underwater, consumers may be unable to do much purchasing to give relief to the ailing economy. While consumers may have made unwise decisions about debt, particularly with home mortgages and credit cards, concern persists that lenders place too high a value on the volume of sales of debt instruments rather than on the interests of the consumer in having fair and transparent financial products. On several occasions, Federal Reserve Chairman Ben Bernanke has urged that as the financial crisis abates, Congress must act to correct the regulatory deficiencies that contributed to the severity of the current recession.

The Obama Administration has tackled broad scale stabilization of financial institutions, encouraged home loan modifications so that homeowners can stay in their homes, and has even tried to spur car sales with the "cash-for-clunkers" program. The Administration and Congress are now evaluating broader scale reforms beyond stabilization. As part of this effort, the House of Representatives is currently considering H.R. 3126, The Consumer Financial Protection Agency Act of 2009 (CFPA Act), which seeks to establish a separate federal agency (CFPA) and remove prior authority from other federal agencies previously having such regulatory authority. The CFPA would be vested with authority to regulate consumer financial products. The House Financial Services and Energy and Commerce Committees have given positive approval. The bill now awaits full consideration by the House of Representatives. A companion bill is also underway in the Senate. This commentary looks at the background of this bill, its provisions, and some of the arguments on both sides.
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