By Silla Brush - 07/21/09 07:54 PM EDT
Frank had intended to pass legislation through his committee on the Consumer Financial Protection Agency (CFPA) before the House adjourns for the summer, but his office confirmed on Tuesday that Frank will delay work until after the August recess.
The new consumer agency, backed by Frank and other Democrats, would gain the consumer protection authorities of other banking regulators. Officials from the Federal Reserve have expressed concern about losing those authorities in the regulatory shuffle.
The administration believes it has strong congressional support for the agency, although it is being opposed by a vast majority of Republicans and most industry groups.
“I think the prospects for our package of reforms, including the consumer protection agency, are strong,” said Michael Barr, assistant Treasury secretary. “I think we have enormous amounts of support. Obviously, we’re mindful of the chairman’s desire to run the process he thinks is most effective.”
Industry groups have pushed back hard on the agency idea, saying it would have sweeping authority that could hamper financial innovation. In a letter on Monday, 22 associations, including the U.S. Chamber of Commerce and organizations representing auto dealers, real estate industries and property and casualty insurance, urged the committee to slow down the debate.
“Everyone is for protecting consumers. The CFPA is just the wrong way to do it,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. “We hope the extra time will allow for a thorough explanation of the problems it creates.”
Chris Stinebart, president and CEO of the American Financial Services Association, a group of 350 consumer and commercial finance companies, said that the proposed agency would result in fewer and less flexible borrowing options. “Consumers are likely to pay more for financial products and services at a time when they can least afford it,” he said.
Meanwhile, the Obama administration on Tuesday unveiled draft legislation to bolster oversight of credit rating agencies that were blamed for issuing top ratings for products that wound up wreaking havoc on the financial system.
The ratings firms issued rosy ratings for structured financial products, such as securities comprising a wide range of mortgage loans. When those loans, particularly sub-prime mortgages, began to default, the high ratings belied the risk in the securities at large.
The legislation intends to curb conflicts of interest in the ratings industry. Issuers generally pay the agencies to rate their products, raising concerns among critics that the system inherently is biased in favor of top ratings. The legislation doesn’t overturn this system.
“We looked at a wide range of proposals,” Barr said. “There are problems with all different kinds of reforms, whether investor-pay models or the existing system.”
The legislation would bar firms from consulting with any company they rate, require agencies to disclose their fees and mandate that issuers disclose preliminary ratings. The administration also aims to set up a dedicated office at the Securities and Exchange Commission (SEC) to oversee ratings agencies.
As the administration and lawmakers debate a variety of changes to the financial regulatory system, members of the New Democrat Coalition on Wednesday will unveil legislation on the derivatives market.