'Shadow' Committee Sympathetic to CFPA Concept

The Shadow Financial Regulatory Committee is "sympathetic" to the Obama administration's plan to consolidate the consumer protection function of banking regulators into a new agency that would set the rules for depositories and non-banks alike. The academic group noted that the federal banking regulators did not do a "great job" of protecting consumers during the subprime lending crisis, and consumer protection will never be a "core mission" for the bank regulators. It will always take a "back seat" to safety and soundness concerns, committee member Robert Litan said. The Brooking Institutions senior fellow noted, however, that his group would make several changes to the Consumer Financial Protection Agency bill that has been introduced in the House. One important change would give the CFPA's lending rules preemption over state rules. The current bill allows the states to enact and enforce tougher rules. "At least in rulemaking, there ought to be [federal] preemption," Mr. Litan said. The bill also gives the CFPA authority to prevent unfair and deceptive and abusive practices. According to Mr. Litan, unfair and deceptive practices are well defined in case law, but abusive practices is new and should be dropped. "We think it is unnecessary and gives too much discretion to the agency," he added.