Creating a new “Consumer Financial Protection Agency” (CFPA), as proposed in the financial regulation bill now before the House, would raise costs for consumers, reduce the number and type of products available to them, increase the micro-management of financial services firms, and greatly increase the confusion caused by differing and conflicting consumer laws in the different states.
A far better approach has been proposed as an amendment by Rep. Walter Minnick (D-ID). His amendment would coordinate the consumer activities of existing state and federal financial regulators by creating a coordinating council designed to promote equal standards of consumer protection.
Critics of the current regulatory system justify the need for a CFPA by citing instances where different agencies applied different regulatory standards to similar products, and pointing to misleading products or unregulated entities that took advantage of consumers. But these problems could just as easily be solved by a coordinating council as by creating a massive new regulator. The council would be managed and staffed by the agencies with an oversight panel of outside experts to monitor its activities and ensure that coverage is universal.
As we have written in the past, the CFPA proposal is filled with poorly considered departures from existing law and practice that are as likely to damage consumers’ interests as improve them. Giving any agency such wide powers makes little sense, and encouraging the individual states to create their own higher standards will damage the national market in financial services. Congress should avoid the bad policies contained in the proposed CFPA. The same goals supported by those who propose the creation of a new agency can be better achieved through a coordinating council of existing regulatory agencies. There is no need for a massive new agency when existing agencies could work better, faster, and at little additional cost.