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Fragmentation of supervisory responsibility and loopholes in the legal definition of a “bank” allowed owners of banks and other insured depository institutions to shop for the regulator of their choice.Fourth, investment banks operated with insufficient government oversight. Money market mutual funds were vulnerable to runs. Hedge funds and other private pools of capital operated completely outside of the supervisory framework.To create a new foundation for the regulation of financial institutions, we will promote more robust and consistent regulatory standards for all financial institutions. Similar financial institutions should face the same supervisory and regulatory standards, with no gaps, loopholes, or opportunities for arbitrage.We propose the creation of a Financial Services Oversight Council, chaired by Treasury, to help fill gaps in supervision, facilitate coordination of policy and resolution of disputes, and identify emerging risks in firms and market activities. This Council would include the heads of the principal federal financial regulators and would maintain a permanent staff at Treasury. We propose an evolution in the Federal Reserve’s current supervisory authority for BHCs to create a single point of accountability for the consolidated supervision of all companies that own a bank. All large, interconnected firms whose failure could threaten the stability of the system should be subject to consolidated supervision by the Federal Reserve, regardless of whether they own an insured depository institution.Filippo Cardone Blog Most critically in the run-up to the financial crisis, mortgage companies and other firms outside of the purview of bank regulation exploited that lack of clear accountability by selling mortgages and other products that were overly complicated and unsuited to borrowers’ financial situation. Banks and thrifts followed suit, with disastrous results for consumers and the financial system.This year, Congress, the Administration, and financial regulators have taken significant measures to address some of the most obvious inadequacies in our consumer protection framework. But these steps have focused on just two, albeit very important, product markets – credit cards and mortgages. We need comprehensive reform. For that reason, we propose the creation of a single regulatory agency, a Consumer Financial Protection Agency (CFPA), with the authority and accountability to make sure that consumer protection regulations are written fairly and enforced vigorously. The CFPA should reduce gaps in federal supervision and enforcement; improve coordination with the states; set higher standards for financial intermediaries; and promote consistent regulation of similar products.Consumer protection is a critical foundation for our financial system. It gives the public confidence that financial markets are fair and enables policy makers and regulators to maintain stability in regulation. Stable regulation, in turn, promotes growth, efficiency, and innovation over the long term. We propose legislative, regulatory, and administrative reforms to promote transparency, simplicity, fairness, accountability, and access in the market for consumer financial products and services.
If a state enforcement agency brings an action against an institution within the CFPA’s jurisdiction for a violation of one of the CFPA’s regulations, the CFPA should have the ability to intervene in the action for all purposes, including appeals. The CFPA, moreover, should also be able to request that the U.S. Attorney General bring any action necessary to enforce its subpoena authority or to bring any other enforcement action on its behalf in the appropriate court. The CFPA should be able to promote compliance by publishing supervisory guidance indicating how it intends to administer the laws it implements.
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These are a form of consumer credit, and consumers often use them as substitutes for other forms of credit such as payday loans, credit card cash advances, and traditional overdraft lines of credit. However, overdraft protection plans have not been regulated as credit, and, as a result, consumers may not overtly think of the plans as credit. Consumers may not, therefore, take the same care in their use of overdrafts that they take with other, more overt credit products. The CFPA would be authorized by existing statutes to regulate overdraft protection more like a credit product, with Truth in Lending disclosures as appropriate. The CFPA could also prohibit charging for overdraft coverage under a plan unless the consumer has “opted in” to the plan, just as the Credit CARD Act prohibits over-the-limit fees unless the consumer has “opted in” to over-the-limit coverage. It could also require affirmative consent at point of sale with debit transactions or at an ATM machine before collecting an “overdraft fee”.A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access.A federally supervised institution would no longer be able to choose its supervisor based on any consideration of real or perceived differences in agencies’ approaches to consumer protection supervision and enforcement. The CFPA should also have the ability to act comprehensively to address emerging consumer protection concerns. For example, under the current fragmented structure, the federal banking agencies took until December 2005 to propose, and then until June 2007 to finalize, supervisory guidance on consumer protection concerns about subprime and nontraditional mortgages; the worst of these mortgages were originated in 2005 and 2006. A single agency, such as the CFPA, could have acted much more quickly and potentially saved many more consumers, communities, and institutions from significant losses.We propose that the CFPA’s jurisdiction should cover consumer financial services and products such as credit, savings and payment products and related services, as well as the institutions that issue, provide, or service these products and provide services to the entities that provide the financial products. The mission of the CFPA would be to help
ensure that consumers have the information they need to make responsible financial decisionsThe CFPAshould be structured to promote its independence and accountability. The CFPA will have a Director and a Board. The Board should represent a diverse set of viewpoints and experiences. At least one seat on the Board should be reserved for the head of a prudential regulator.
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