WASHINGTON — House Financial Services Chairman Barney Frank scoffed today at assertions that a new consumer protection agency would morph into “some out of control entity.”
“There is no pattern of overregulation I can see in the consumer area, and I don’t see one here,” Frank, D-Mass., said at a hearing on the Obama administration’s proposals to overhaul financial industry regulation in the wake of high-risk practices that led to the deep recession now under way.
The consumer agency is envisioned as a central component of President Barack Obama’s broader plan to usher in a new era of regulations on banks and other financial institutions. Frank’s panel is expected to take up the legislation in July, and is expected to enact it.
Frank and Democratic Sen. Christopher Dodd, chairman of the Senate Banking Committee, said they’ve promised Obama a bill on his desk by the end of the year.
While Democrats seem to be united on creating a consumer-protection agency to look after things like subprime mortgages and other high-risk practices by lenders, Republicans and industry groups are railing against it. They say there already are enough regulators policing the market and that holding those regulators more accountable would have prevented the current crisis.
Edward Yingling, president and chief executive officer of the American Bankers Association, said in prepared testimony that filling in regulatory gaps and extending supervision to nonbank financial firms “is likely to be quicker and more successful than a separate consumer regulator.”
House Republicans were even sharper in their critique. Rep. Jeb Hensarling, R-Texas, said the government had no business interfering in the types of financial products Americans want to buy.
Frank, D-Mass., said such an argument was unfounded.
“The fear that this will be some out of control entity ravaging the financial sector is unsupported by anything in American history,” he said.
Elizabeth Warren, who chairs a congressionally appointed panel tasked with reviewing the financial system, initially proposed creating a consumer-protection agency. She said credit cards and mortgages come with such dense fine print that it makes nearly impossible for responsible borrowers to understand.
“The consumer market is broken,” she told the House panel.
Dodd, D-Conn., also has spoken out in defense of creating a new regulatory agency, suggesting that its establishment is all but guaranteed.
Less clear is the administration’s proposal to task the Federal Reserve with regulating any institution deemed so big or influential in the market that its failure could seriously damage the economy.
Under Obama’s plan, a council of federal regulators, including the Fed, would help monitor the market for risk. But the Fed would ultimately be held accountable for ensuring that companies don’t make overly risky bets.
Last week, several senators suggested tasking the council of regulators with the job instead and criticized the Fed for its role in the recent crisis.
“The reality is they (the Fed) had the knowledge and authority to address the mortgage problem long before it became a crisis, and they didn’t act,” said Sen. Robert Menendez, D-N.J.
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