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last updated on December 16, 2009

Consumer Financial Protection Agency

THE ISSUE IS

The creation of a new federal agency to oversee consumer financial product safety.

IT IS IMPORTANT BECAUSE

Since the start of the current economic crisis there has been a push to apply the same type of consumer protections to financial products that currently exist for other consumer products such as pharmaceuticals and children’s toys.

Included in the Obama Administration white paper outlining its proposals for financial services regulatory reform released on June 17, 2009, was the creation of a new independent entity called the Consumer Financial Protection Agency (CFPA).

The CFPA would oversee all consumer protection rulemaking and regulations with regard to consumer financial products and services. Supporters of the CFPA claim that a new federal commission is necessary to prevent future economic crises by limiting the use of harmful financial products such as predatory mortgages. They also hope to address perceived regulatory gaps by covering entities such as payday lenders, mortgage brokers and broker-dealers.

The business and financial services community is united in its opposition to the creation of this new oversight agency. The CFPA will lead to dual regulation between the federal government and the states as well as conflicts between consumer protections laws administered by other federal agencies such as the Securities and Exchange Commission and the Federal Trade Commission. By placing too much emphasis on prohibitive consumer protections the administration risks weakening markets, innovation, and competition.

LEGISLATIVE HISTORY

On June 30, 2009, the administration released its draft legislation for the creation of the CFPA. The draft specifically excludes most property/casualty insurance from the jurisdiction of the new agency – but includes mortgage, title and credit insurance.

The CFPA focus is on "consumer financial products or services" - defined in the bill as "any financial product or service to be used by a consumer primarily for personal, family, or household purposes." The definition of "financial product or service" under the bill is "any product or service that...results from or is related to engaging in one or more financial activities." The list defining "financial activities" is numerous, but the final subsection of the definition specifically states "the Agency shall not define engaging in the business of insurance as a financial activity (other than with regard to credit insurance, mortgage insurance, or title insurance...)."

In addition, the legislation does not subject insurers to the CFPA's reporting requirements for "non-depository covered persons,’ does not transfer consumer financial protections currently overseen by state insurance regulators to the CFPA, and preserves state insurance regulators' authority over insurance products and annuities.

There remain some concerns about whether insurers will be subject to some areas of the CFPA’s jurisdiction regarding the collection of personal data and privacy protections. NAMIC is seeking clarification on these concerns and working to ensure that insurers are completely excluded.

On July 8, 2009, Rep. Barney Frank, Chairman of the House Financial Services Committee, introduced legislation modeled on the administration’s draft in the House. H.R. 3126 – the Consumer Financial Protection Agency Act – maintains the exclusion of most lines of insurance. It is anticipated that this legislation will move quickly through the House.

On July 14, 2009, the Senate Banking Committee held its first hearing on the proposed CFPA. No legislation has yet been introduced in the Senate to create the CFPA. However, Chairman Christopher Dodd has indicated that this will be a priority for the committee and will be a centerpiece of future Senate financial services regulatory reform measures.

NAMIC POSITION

Right now, most property/casualty insurance products are excluded from the CFPA, however there remains much debate ahead. NAMIC is encouraged that supporters of the CFPA recognize the difference between property/casualty insurance and other financial activities and the strong protections afforded consumers and industry alike by the state-based regulatory system. However, NAMIC is advocating the complete exclusion of insurance – including mortgage, title and credit insurance which are currently included.

NAMIC continues to work closely with the administration and Congress to adequately address concerns over consumer protection while ensuring the property/casualty industry is excluded and the state-based regulatory system maintained.

CONTACT INFORMATION

For more information please contact Dylan Jones, senior affairs director, at (202) 628-1558 or djones@namic.org.

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