The President’s financial reform package, which he expects Congress to complete by the end of the year, sparked debate among a number of politicians, economists and experts. Rep. David Scott (D-Georgia), a member of the Congressional Black Caucus who serves on the House Financial Services Committee, believes that the oversight council is the most critical component of the administration’s proposal.
“No one entity can regulate systemic risk because the financial industry is so complex and complicated. This will give us the ability to look around the corners to see what’s coming before it gets on us,” he says. He also urges that the council regularly reports to committees that oversee financial matters as well as Congress as a whole.
One measure met with opposition was formation of the CFPA, which would regulate, among other financial products, mortgages and credit cards. Wayne Abernathy, executive director of Financial Institutions Policy and Regulatory Affairs at the American Bankers Association, maintains that such an agency could actually be more costly to the consumer. If firms are able to offer only a limited number of products, prices will be higher because less risk would be spread across a given lender’s financial offerings. He also voiced concerned that other financial regulators would not require the same standard of accountability as banking regulators.
Rep. Mel Watt (D-North Carolina), a member of the Congressional Black Caucus that serves on the House Financial Services Committee, says the CFPA would actually result in fewer costlier products.
“To the extent that firms have been making products that people don’t understand, that they can’t afford to repay, and that are not beneficial to them when they really understand what they do is the agency’s purpose, from my perspective it shouldn’t be a criticism, but a blessing,” says Watt, who supports the creation of the new agency. He does, however, expect some lawmakers to oppose the idea of funding an agency to assume jurisdictions already held by other regulatory bodies.
Congressman Edward Royce (R-California), another member of the House Financial Services Committee, argues that CFPA wouldn’t be necessary if regulators performed their jobs. If not for the current recession, the Bernie Madoff scandal may not have been uncovered even though the SEC investigated the firm eight times during a 16-year period. “If we had effective enforcement of consumer protection in each of these agencies, you could achieve that goal without adding the expense of a separate institution that in many ways is another layer of bureaucracy,” he asserts.