Lenders, Banks Oppose Powerful New Regulator

Mortgage Bankers Association President and Chief Executive Officer John A. Courson today expressed concerns to the House Financial Services Committee on Regulatory Reform that the proposed creation of the Consumer Financial Protection Agency would burden mortgage bankers with another layer of regulation in addition to the current patchwork of state and federal laws, a news release said. The heavier burden will result in higher borrower costs.

MBA was also concerned that the CFPA would be saddled with overseeing so many consumer financial products that mortgage oversight would receive inadequate attention. It called for Congress to consider its own proposal, the Mortgage Improvement and Regulation Act, which would provide uniform standards and consistent regulation for all mortgage lending.

“Instead of adding duplicative regulation at the federal level, it would fill gaps in regulation of non-depository lenders and mortgage brokers, streamline regulation and enhance enforcement,” Courson explained of the group’s proposal.

U.S. Treasury Assistant Secretary for Financial Institutions Michael Barr seemed to be mostly in agreement with the mortgage bankers’ notion that the current regulatory system is too fragmented, according to a transcript of his testimony last week before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection of the Committee on Energy and Commerce. He said the system is designed to fail — with banks subject to multiple uncoordinated regulatory regimes.

Barr explained that small mortgage brokers and firms “peddled subprime and exotic mortgages” with little oversight as the market rapidly expanded beyond the ability of the Federal Trade Commission and state regulators to adequately supervise it.

He said the proposed agency would write regulations, supervise institutions and providers for compliance, and lead enforcement efforts for all consumer financial products. It would also limit yield spread payments to mortgage brokers, require best execution and assume existing statutory authorities — including the Truth in Lending Act and Equal Credit Opportunity Act.

The FTC would retain its authority to investigate and prosecute financial-related fraud under the FTC Act and maintain its authority to prevent unfair or deceptive practices, while states will continue to license and bond non-bank service providers.

But Barr, in contrast to MBA, said the CFPA is not a new layer of regulation and would consolidate existing regulators and authorities.

In testimony yesterday before the Senate Banking Committee, American Bankers Association President and CEO Edward L. Yingling explained the group’s opposition to the planned creation of the new agency, according to a statement. ABA instead prefers broader implementation of the Unfair and Deceptive Acts and Practices Act by existing regulators and better supervision and regulation of non-bank operators — who were reportedly responsible for 94 percent of high-cost mortgage lending.

“These entities have not been subjected to the breadth of consumer protection laws and regulations with which banks must comply,” the ABA chief testified. “The need is for the same bank-like structure, supervision and examination to be applied to non-bank financial service providers.”

Yingling warned that the proposed regulator would complicate the existing regulatory structure without addressing the cause of the current economy. He also questioned the unprecedented concentration of so much authority at a single agency — which could undermine incentives for greater innovation.

“This would appear to be the most powerful agency ever created,” Yingling added. “It makes little sense to regulate the terms conditions and prices of deposit products or loan products separately from the business aspects of a bank’s fundamental process — turning deposits into loans.”

But the Treasury’s Barr disagreed, noting in his testimony that the proposed regulator would set consistently high standards and create a level playing field for banks and non-bank financial services providers. He also said the CFPA would block banks from shopping for the least restrictive supervisory agency.

“Tinkering with the consumer protection mandates or authorities of our existing agencies cannot solve the fundamental problem that they are organizationally ill-designed to protect consumers, and too fragmented to maintain high and consistent standards across the consumer financial marketplace,” Barr stated.

FTC Chairman Jon Leibowitz testified last week before the House committee that the definition of key terms in the administration’s proposal — such as “credit” and “financial activity” — are too broad and should be limited. He also cautioned that care must be taken to ensure borrowers are protected during a potential regulatory transition from the FTC to the new agency.

But the FTC also seemed interested in a House proposal, the Consumer Credit and Debt Protection Act — which would extend the commission’s authority over financial products.

U.S. House Speaker Nancy Pelosi (D-Calif.) was on the pro-CFPA bandwagon — calling the proposal to consolidate oversight, supervision and regulation of retail financial products into one agency “the right thing to do for all the consumers who lost their homes and who were subject to abusive mortgage lending.”