Wednesday, July 20, 2011

President Would Veto Legislation Restructuring Governance of Consumer Financial Protection Bureau

In an OMB statement, the Administration indicated that the President would veto the Consumer Financial Protection Safety & Soundness Improvement Act of 2011, HR 1315, which is currently under active House consideration. HR 1315 is an omnibus piece of legislation that includes three bills approved by the House Financial Services Committee. In addition to the original HR 1315, H.R. 1121, the Responsible Consumer Financial Protection Regulations Act, and H.R. 1667, the Bureau of Consumer Financial Protection Transfer Clarification Act were rolled into the legislation by the Rules Committee.

The legislation would restructure the governance of the Bureau from a single Director to a five-member Commission similar to the SEC. The measure would also provide that the Financial Stability Oversight Council can set aside any regulation issued by the Bureau upon the affirmative vote of the majority of Council members, excluding the Director of the Bureau. Currently, a 2/3 vote is required to set aside a Bureau regulation.

The legislation would also require the Council, upon the petition of a member agency, to set aside a final regulation adopted by the Bureau if the Council decides that such regulation is inconsistent with the safe and sound operations of U.S. financial institutions. Currently the Council is merely authorized, upon petition, to set aside a final regulation, but only if the regulation would put the safety and soundness of the U.S. banking system or the stability of the U.S. financial system at risk.

The veto message said that H.R. 1315 would significantly interfere with the CFPB’s charge to make consumer financial markets operate more efficiently and effectively, facilitate innovation in the marketplace, protect consumers’ interests, and ensure that consumers have the information they need to make prudent financial decisions. In addition, H.R. 1315 would needlessly delay the transfer of Federal consumer financial protection responsibilities from seven other agencies to the Consumer Financial Protection Bureau, thus continuing to foster a fragmented approach to consumer financial protection.

The legislation would seriously weaken the Bureau’s decision-making power by making the head of the CFPB a five-person Commission rather than a single Director, noted the Administration, significantly limiting the Bureau’s ability to effectively respond to the rapid changes in the dynamic consumer financial products and services market. Finally, H.R. 1315 would compromise the independence of the CFPB by imposing unwarranted restrictions on a Bureau that is already subject to significant oversight.

The Administration noted that the CFPB is the only banking regulator whose rules can be set aside by a council made up of other Federal agencies. H.R. 1315 would go beyond this already stringent limitation by making it easier for the Financial Stability Oversight Council to set aside CFPB rules and regulations, said the Administration, which would significantly impede the Bureau’s ability to protect consumers from unfair, deceptive, and abusive practices.

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