This testimony describes why we recommend that consumer protection for financial products and services be consolidated within a new federal Consumer Financial Protection Agency.
A review of the history of consumer protection by the Federal Reserve and the other banking agencies demonstrates consistent inattention, at best, and opposition, at worst, to the needs of consumers. These failures transcend many years and many different subject areas, and show that the problems are institutional, not occasional lapses that have been corrected by experience or that can be fixed by tinkering with the existing framework.
Our testimony describes why we believe that a new CFPA would do better. First, it will give consumer protection the attention and clear focus it deserves. Second, by consolidating functions that are now in seven different agencies, it will provide consistent protection no matter who offers the product or service, will be able to take a holistic view, and will be able to act
quickly to prevent harm. Finally, the agency will be set up to ensure regulatory independence and freedom from regulatory arbitrage.
We also describe the powers that the new agency should have, the role that the Federal Reserve and the other agencies should retain, and how the various agencies will consult and coordinate. In short, we agree with the President and Chairman Frank that, in order to ensure robust consumer protection, the new agency should have the full set of tools to protect consumers: data collection and research, supervision and examination, rule-writing and enforcement. These responsibilities should be moved away from the Federal Reserve and other banking agencies and be given exclusively to the CFPA, in order to ensure effectiveness and avoid conflicts that can paralyze action, though the banking agencies and the Federal Trade Commission should retain backup enforcement powers for their regulated entities.
Properly implemented, a Consumer Financial Protection Agency will encourage innovation by financial actors, increase competition in the marketplace and lead to better and safer choices for consumers.
We look forward to working with you and committee members to enact a strong Consumer Financial Protection Agency bill to restore the faith and confidence of American families that the financial system will protect their homes and their economic security.