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NEWS RELEASE
June 24, 2009
ABA Media Contact: Peter Garuccio
(202) 663-5452
E-mail: pgarucci@aba.com
ABA TESTIFIES ON PROPOSAL TO CREATE A CONSUMER FINANCIAL PROTECTION AGENCY
WASHINGTON – The American Bankers Association responded today to the Obama administration’s proposal to create a new consumer regulatory body for financial services that would be separate from any future prudential regulatory structure.
Testifying before the House Financial Services Committee, ABA president and chief executive officer Edward L. Yingling said that the banking industry fully supports effective consumer protection but that creating a new consumer regulatory agency is not the solution to the current economic problems.
“There is no shortage of laws designed to protect consumers,” said Yingling. “Making improvements under the existing regulatory structures – particularly aimed at filling the gaps of regulation and supervision of nonbank financial providers – is likely to be quicker and more successful than a separate consumer regulator,” he said.
Yingling stressed that regulation aimed at ensuring bank safety and soundness and regulation designed to protect consumers are essentially two sides of the same coin and that an integrated and comprehensive approach to both is preferable. As an example, he pointed to regulations requiring holds on customer deposits, which protect both banks and consumers from fraud and also balance the complex operational issues involved in clearing checks.
“Consumer protection is not just about the financial product, it is also about the financial integrity of the company offering the product,” he said. “It is a mistake to separate the regulation of an institution from the regulation of its products.”
He said that separating consumer protection from safety and soundness will lead to conflicts, duplication and inconsistent rules. This would place banks in an untenable position if, for example, the consumer regulator disagrees with the safety and soundness regulator.
Yingling also maintained that the key focus of change should be on closing existing regulatory gaps rather than creating yet another agency. Improvements inside the banking regulatory process can be made, he said, but the most pressing need is to close the gaps outside the banking industry.
“It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector,” he said. “Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created.”
The manner in which this new agency would be funded was also left vague, said Yingling, raising significant questions. “To be remotely effective, this new agency will have to be very large,” he said. “Where is this agency’s budget to come from?”
Finally, Yingling pledged to work with Congress to address the need for better consumer protections and offered some concepts that could be considered instead of creating a new regulatory agency.
He noted that the Federal Reserve, Office of Thrift Supervision and Federal Trade Commission all have authority under the Unfair and Deceptive Acts and Practices Act (UDAP), but said that this authority has not been widely used. Yingling suggested that use of this authority would address many of the current issues raised and he offered his support for legislation passed by the House last year that would extend UDAP authority to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Yingling also said that disclosures can and should be improved and that consumer regulation within existing agencies can be reviewed and strengthened, perhaps by requiring regular reports to Congress.
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For a copy of Yingling’s full testimony click here
The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.5 trillion in assets and employ over 2 million men and women.
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