Pre-Markup Changes to the CFPA BillOctober 12, 2009 - by Donny Shaw
In the post I just wrote on this week’s mark-up of the Consumer Financial Protections Act, I mentioned that the bill has already been weakened since it was introduced in July. Joe Nocera had a good piece in the New York Times this weekend that I recommend reading in full. One part I want to excerpt here, though, is his rundown on what has already been changed in the bill before the mark-up has even begun:
The administration’s outline for this new agency — which would regulate mortgages, credit cards, debit cards, installment loans and any other product issued by a financial institution — was sent up to Capitol Hill in July. Since then, Barney Frank, the committee chairman, has made a number of substantial changes, none of which, I have to say, have strengthened the proposed legislation. He stripped the bill of the much-promoted “plain vanilla” provision, which would have forced, say, mortgage brokers to offer customers a 30-year fixed mortgage alongside any exotic option A.R.M. mortgage they wanted to push.
He has changed the nature of an oversight panel, so that it would consist of the top bank regulators — the very same regulators who did such a miserable job looking out for consumers during the housing bubble. He has tinkered with the way the agency will be financed, making it less onerous for the banking industry and more onerous for nonbank financial institutions that will come under the agency’s purview.
Saddest of all — at least from where I’m sitting — he abandoned the so-called reasonableness standard, which would have forced bankers to make sure their customers both understood the products they were buying and could afford them. Mr. Frank has said that such a provision would put bankers in an “untenable position.” Yet that is precisely what brokers are required to do when they sell a stock or a bond to their customers. Why shouldn’t the same standard apply to a banker making a mortgage loan?