Return From Recess May Set the Tone for Regulatory Reform

Wednesday, September 2, 2009 · 1 Comment

(2 Sep 2009) BNA — Next week is expected to be a key transition period for legislative efforts to restructure financial services regulation, as lawmakers compare notes from visits to their home states and districts.

Full article after the jump…

Financial Institutions Lawmakers’ Return From August Recess; May Set the Tone for Regulatory Reform

Next week is expected to be a key transition period for legislative efforts to restructure financial services regulation, as lawmakers compare notes from visits to their home states and districts and Senate Banking Committee Chairman Christopher Dodd (D-Conn) weighs a possible committee change.

Much of the legislative agenda for the rest of 2009 will be shaped as lawmakers weigh input from voters and colleagues, several stakeholders told BNA Sept. 1. “They’re taking the temperature of constituents, but also of their committee members and caucuses. That’s going to give them guidance on what they can and can’t do in normal order,” said a lobbyist for a financial sector trade association.

Consumer advocates also are watching for signals right after the Labor Day holiday, especially in the House, where Financial Services Committee Chairman Barney Frank (D-Mass.) has introduced the “Consumer Financial Protection Agency Act” (H.R. 3126), which would implement most of the Obama administration’s proposal to protect consumers in the financial arena.

The immediate post-holiday period will be telling, said Pam Banks, senior policy counsel for financial services at Consumers Union. “The first week is important to get the lay of the land and where we are on regulatory reform, especially on the House side,” Banks told BNA.

In the House, Frank is expected to move quickly on his bill, which would empower the proposed CFPA to write and enforce rules on a wide range of financial products and services, and to ensure compliance.

Will U.S. Chamber Broaden Opposition to CFPA?

However, opposition to the CFPA, which already is opposed by several banking groups and some federal financial institution regulators, could be widening.

The U.S. Chamber of Commerce says H.R. 3126 could sweep into its coverage many more companies than expected. The group said the bill uses very broad language in Section 101(9) to define “covered persons”—those subject to the CFPA—and in Section 101(10) to define “credit.”

On a new website aimed at the CFPA proposal, the Chamber of Commerce said the legislation would have a broad sweep. “If you allow customers to pay with credit, to use a lay-away program, or even to pay in more than one installment, your business would face significant new regulation. Even businesses that are indirectly related to consumer finance, such as sellers of gift cards, advertisers, accountants, home builders, utilities and internet providers will be covered by this sweeping new law,” the Chamber of Commerce said. “A lot of these businesses that are getting wrapped into this had nothing to do with the financial crisis,” Ryan McKee, director of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, told BNA Sept. 1.

Some said the Chamber of Commerce effort could make regulatory reform more accessible to consumers and small businesses that might otherwise take little notice of the debate, especially if fiscally conservative Democrats object to the bill. “The Blue Dogs don’t want anything that will mess up the economy,” one government official said.

But Ellen Harnick, senior policy counsel at the Center for Responsible Lending, said companies concerned about CFPA oversight already face varying degrees of regulation. The overall focus of the bill, to sweep more broadly in an effort to protect consumers, is still a plus, she said. “This is exactly what the banks and nonbank lenders typically say they want—a level playing field,” Harnick told BNA.

Decision by Dodd Expected Soon

Dodd, the ranking Democrat on the Health, Education, Labor and Pensions Committee, is expected to announce by next week whether he will assume the chairmanship of that panel or stay at the helm of the Senate Banking Committee. Much hinges on Dodd’s decision, several analysts and lobbyists told BNA. If Dodd moves to chair the Health, Education, Labor and Pensions Committee, he opens the chairmanship of Senate Banking to Sen. Tim Johnson (D-S.D.), the next Democrat in seniority, or, if Johnson decides not to serve, then the next-ranking senator, Sen. Jack Reed (D-R.I.).

Many in the financial sector are debating what happens to regulatory reform if health care—now at the forefront of the administration’s legislative agenda—loses steam. Several said that script already played out earlier this year, when the administration and members of Congress put a strong focus on executive compensation as health care reform encountered strong opposition.

Expect the same thing to happen again if the health care effort bogs down, they said, as Democrats focus on aligning the interests of corporate America with shareholders and consumers by spotlighting executive compensation and consumer protection.

“Members are still hearing about concerns about institutions being bailed out and supported by the government while individual consumers are trying to make ends meet and saying, ‘What are you going to do to help me?’ That’s why what Dodd decides is important. He’s at the epicenter of all these issues—health care, housing, reg reform,” a trade group official said.

By R. Christian Bruce