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NEWS RELEASE
July 14, 2009
ABA Media Contact: Peter Garuccio
(202) 663-5452
E-mail: pgarucci@aba.com
ABA TESTIFIES ON PROPOSAL FOR A CONSUMER FINANCIAL PROTECTION AGENCY
WASHINGTON – The American Bankers Association reiterated its opposition to the planned creation of a new consumer regulatory body for financial services that would operate separately from prudential regulatory agencies.
Testifying before the Senate Banking 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 agency would simply complicate the existing regulatory structure and would not address the problems that led to the current economic situation. He also questioned the wisdom of granting such broad authority to the proposed new agency and reasserted the industry's position that it is a mistake to try and separate safety and soundness regulation from consumer regulation.
"The biggest failures of the current regulatory system, including consumer protection failures, have not been in the regulated banking system, but in the unregulated or weakly regulated sectors," said Yingling. "The most pressing need is to close the regulatory gaps outside of the banking industry through better supervision and regulation," he said.
In support of this notion, Yingling pointed to the Administration's own numbers which indicate that 94 percent of the high cost mortgages occurred outside the regulated banking sector. Non-bank entities in this sphere generally operate with a very different business model and are not subject to the same regulatory examination standards or capital requirements that banks must adhere to. As a result, they have a different set of incentives that often work at cross-purposes with safe and sound lending practices and consumer protection.
"These entities have not been subjected to the breadth of consumer protection laws and regulations with which banks must comply," he said. "The need is for the same bank-like structure, supervision and examination to be applied to non-bank financial service providers."
With respect to the powers the new agency would have, Yingling maintained that the proposal gives the new agency unprecedented authority to control the products and services offered by banks, and argued that such authority will undermine incentives for greater innovation and better customer choice.
"This would appear to be the most powerful agency ever created in that it has almost unlimited power to regulate and even mandate the products offered by the regulated," he said. "This proposal will chill efforts to innovate and respond to consumer demand for beneficial products and services."
As to the separation of safety and soundness regulation from consumer regulation, Yingling maintained that attempts to separate one from the other will lead to conflicts, duplication and inconsistent rules, leaving banks in an impossible situation when regulators inevitably disagree.
"Almost every consumer bank product or service has both consumer issues and safety and soundness issues," he said. "It is important to remember that one person's deposit funds another person's loan. 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."
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.
"Traditional banking is back in style," he said, "but that does not mean improvements cannot be made."
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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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