House Financial Services Chairman Barney Frank (D-MA) said today that he will not support placing a new Consumer Financial Protection Agency (CFPA) in the Federal Reserve. Yesterday, sources indicated that Senate Banking Committee members had reached a compromise to do exactly that. Frank's statement makes clear that he's not on board. His blessing matters.
First, it's important to note that the House version of financial regulation would create the CFPA as a new stand-alone agency. The provision barely passed, but it was ultimately included in the bill. Frank says that he still prefers a new agency to be assigned the task of consumer financial protection, though he would also support the Treasury being given this authority. According to the press release, he won't support putting the agency in the Fed because:
My main objection to housing this critical function in the Federal Reserve has been the central bank's historical failure to implement consumer protection as a central part of its mission and role.
I actually sort of agree. I'm not too keen on the idea of a CFPA. But if you want to bother establishing one, then it probably won't do much good to put it in an existing bank regulator. Regulators allegiance is to banks, not the consumers.
As Frank says, the Fed, in particular, already has a function to protect consumers. As its website explains:
Another area of Board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act [see Consumer Information and Community Development].
Yet history has shown that the Fed tends to be more reactive than proactive when it comes to consumer protection. Democrats in Congress would also likely argue that the Fed gives banks the benefit of the doubt over consumers. A perfect example is the recent credit card regulation changes. The Fed had scheduled most of the same rules to take effect months later, but Congress passed legislation to speed things up. The time difference stems from banks convincing Fed officials they needed more time to implement the changes.
Frank's disapproval here probably spells the death of the concept of a CFPA being housed in the Fed. He really does wield the power to kill a concept if he pleases. Obviously, he won't do so at the risk of not having any financial regulation at all, but I think he could very well force the Senate to rethink this approach. If I had to guess, I'd bet that we'll end up with the CFPA as a part of the Treasury or FDIC.
Is there some possibility that the CFPA could fail altogether? Sure. But Frank makes clear today that he won't let that happen easily. He just needs to sway the Senate to see things his way.
But apparently Frank isn't the only one stressing the importance of a CFPA. A new "Funny Or Die" sketch shows that he also has some prominent comedians on his side (h/t WSJ's Real Time Economics):
(Image Source: Wikimedia Commons)