New Consumer Protection Agency Proposal Eases Oversight

Rep. Barney Frank, the chairman of the House's Financial Services Committee who originally introduced the bill to establish a Consumer Financial Protection Agency, has released an updated draft of that bill. Though it makes a number of concessions to ease regulatory oversight over some financial businesses, the new version doesn't change the proposed agency's relationship with the insurance industry.

The bill still establishes new oversight over those "selling or servicing credit insurance or mortgage insurance" or "providing real estate settlement services, including providing title insurance." It does, however, include an otherwise blanket exclusion for the insurance industry. Though the agency would regulate financial activity, it "shall not define engaging in the business of insurance as a financial activity (other than with respect to credit insurance, mortgage insurance, or title insurance)," according to the draft language.

Most of the changes in the updated 291-page draft pull back on more stringent regulations, such as a demand that financial-services companies standardize their products. It also ensures that smaller-scale uses of credit, such as retail credit in layaway plans, isn't lumped in with the regulation of the other categories.

When Frank brought out the original bill -- a near copy of what the Obama administration had proposed -- the insurance industry opposed it, announcing it is against any kind of insurance being included in the new agency's jurisdiction.

"We oppose inclusion of any line of insurance," a coalition of insurance organizations wrote in a July letter to leading lawmakers after Frank released his original proposal. The 13 signatories included the American Council for Life Insurers, American Insurance Association, National Association of Insurance and Financial Advisors, National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America. "Insurance is a very different product from the financial products intended to be regulated under the proposal," the letter said. Because of the inclusion of mortgage, title and credit insurance, "a distinct possibility also exists that other forms of insurance could be swept under the CFPA's jurisdiction, to the extent one is deemed a 'financial adviser' 'providing financial or other related advisory services' or 'tax-planning' services," the groups contended, quoting references from the proposal (BestWire, July 16, 2009).

Treasury Secretary Tim Geithner said in testimony before the committee this week, "The need for a dedicated, consolidated consumer protection agency is clear. The current consumer protection system failed to protect consumers, responsible providers, or market efficiency and innovation." He encouraged the lawmakers to act quickly and suggested a general administration support for Frank's latest proposal. "Time is the enemy of reform. As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency."

The Financial Services Committee has also announced it will examine the proposed agency in a Sept. 30 hearing.