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Saturday, May 15, 2010

Financial Regulatory Reform: Consumer Financial Protection Proposals Under the Obama Administration Plan, H.R. 4173(Formerly H.R. 3126), and S. 3217

David H. Carpenter
Legislative Attorney

Mark Jickling
Specialist in Financial Economics

In the wake of what many believe is the worst U.S. financial crisis since the Great Depression, the Obama Administration has proposed sweeping reforms of the financial services regulatory system, the broad outline of which has been encompassed in a nearly 90-page document called the Administration's White Paper (the White Paper or the Proposal). The Proposal seeks to meet five objectives: 

(1) "Promote robust supervision and regulation of financial firms"; 

(2) "Establish comprehensive supervision and regulation of financial markets"; 

(3) "Protect consumers and investors from financial abuse"; 

(4) "Improve tools for managing financial crises"; and 

(5) "Raise international regulatory standards and improve international cooperation." 

The Administration subsequently offered specific legislative proposals that would implement each of the five objectives of the White Paper, including the Consumer Financial Protection Agency Act of 2009 (the CFPA Act or the Act). The Act would establish a new executive agency, the Consumer Financial Protection Agency (the CFPA or the Agency), to protect consumers of financial products and services. On July 8, 2009, Representative Barney Frank, Chairman of the House Financial Services Committee, introduced similar legislation, H.R. 3126, which also is entitled the CFPA Act of 2009. H.R. 3126 was marked up and ordered to be reported by both the House Financial Services Committee and the House Energy and Commerce Committee. H.R. 3126 was incorporated as Title IV of H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, which passed the House by a vote of 223-202 on December 11, 2009. On March 22, the Senate Banking Committee also approved a comprehensive financial reform bill, which ultimately was reported as S. 3217, the Restoring American Financial Stability Act of 2010 (RAFSA). Title X of RAFSA would create a Bureau of Consumer Financial Protection within the Federal Reserve System, which would be provided similar authorities over consumer financial products and services as proposed for the CFPA by H.R. 4173, with some significant differences. 

This report provides a brief summary of the Administration's CFPA Act and delineates some of the substantive differences between it and H.R. 4173, Title IV, as it passed the House, and S. 3217, Title X, as it passed the Senate Banking Committee. It then analyzes some of the policy implications of the proposal, focusing on the separation of safety-and-soundness regulation from consumer protection, financial innovation, and the scope of regulation. The report then raises some questions regarding state law preemption, sources of funding, and rulemaking procedures that the Act does not fully answer.

Date of Report: April 27, 2010
Number of Pages:17
Order Number: R40696
Price: $29.95

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