Extended financial oversight meets industry, lawmaker opposition

Government efforts to tighten regulation of mortgages and credit cards are meeting growing opposition from the financial-services industry and some congressional Republicans.

A proposal to increase oversight of banks and other financial institutions would, among other things, create a Consumer Financial Protection Agency to monitor practices in the credit-card and home-loan businesses. The goal is to close loopholes that may have contributed to the housing downturn and the overall economic crisis.

Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, cited a need for the agency in a session with real estate writers three weeks ago and again Wednesday, when he introduced the measure.

"I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking," said Frank, who wants something in place so that "you cannot give someone a loan that they cannot afford to pay back."

U.S. Rep. Spencer Bachus (R., Ala.), who opposes the bill, said that it "appears to be premised on the idea that Washington is better at making financial decisions for all Americans than leaving that choice up" to individuals.

"The new agency would create a 'Good Housekeeping' seal of approval for the financial products that are available, giving consumers a false sense of security," said Bachus, who chairs the House Subcommittee on Financial Institutions and Consumer Credit.

In testimony submitted to Frank's committee, the American Financial Services Association, a trade group representing 350 consumer and commercial finance companies, said the idea of a "government-run entity dictating which personal-finance products can - or cannot - be made available in the marketplace is troubling."

"So is the notion of limited product access for certain borrowers, such as those considered to be subprime," the group said.

Alex J. Pollock, a resident fellow at the American Enterprise Institute, called the proposed agency "a highly intrusive, large, very expensive bureaucracy, with broad, rather undefined, and potentially arbitrary powers."

American Bankers Association president Edward Yingling said the bill would complicate the regulatory structure by "adding another extensive layer of regulation."

"There is no shortage of laws designed to protect consumers," he said. Enhancing that protection under rules "aimed at filling the gaps of regulation and supervision of nonbank financial providers" is likely to be more successful, more quickly, he added.

In support of the measure, Consumer Federation of America's Travis Plunkett argued that a major cause of the recession was "the simple failure of federal regulators to stop abusive lending, particularly unsustainable home-mortgage lending."

The proposed agency "targets the most significant underlying causes of the massive regulatory failures that occurred," Plunkett said.

In an interview, Moody's Economy.com chief economist Mark Zandi, who advised John McCain during his 2008 presidential bid, said the agency "is much needed [because] many households have little understanding of the financial products they are signing up for."

"The financial-services industry does have a reasonable concern that the [agency] will be overbearing and thus stifle innovation in financial services and lead to higher costs for households," he said. "But while it will be a tricky balance, at least it will be one that is presumably being made in a consistent and coherent way."

Said Patricia Hasson, executive director of the Consumer Credit Counseling Service of Delaware Valley: "Whether it is a new agency or housed in an existing agency is less important than the combination and the authority to act quickly."