House and Senate Bills on Financial Regulatory Funding Differ Starkly

Appropriations bills covering key regulatory agencies involved in implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act advanced in both the House and the Senate last month.  While the Senate Appropriations Committee approved the President’s proposed funding increases for both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the House Appropriations Committee continued its track record of undermining financial reform by underfunding the responsible regulatory agencies.  In addition, the House financial services appropriations bill attacks the independence of the Consumer Financial Protection Bureau (CFPB) by subjecting it to the same highly politicized appropriations process the House has used to underfund the SEC and CFTC.

The House agriculture appropriations bill (H.R. 5973) would reduce funding for the CFTC from this year’s already inadequate $205 million to $180 million, just as the agency’s responsibility to implement reforms of the over-the-counter derivative markets kick into high gear.  In contrast, the Senate Appropriations Committee has approved a $308 million budget for the agency as part of its financial services funding bill (S. 3301).  “Senate appropriators deserve enormous credit,” said CFA Director of Investor Protection Barbara Roper.  “In a tough budget environment, they have worked hard to free up adequate funds to ensure that this tiny agency has the funds it needs to fulfill its enormous, and enormously important, regulatory responsibilities.  The House’s proposed funding level for the CFTC is nothing short of irresponsible,” she added.  “To save a few million dollars, it risks trillions of dollars in losses to investors, taxpayers and the U.S. economy. Fortunately, President Obama has threatened to veto the House agriculture funding bill, specifically citing underfunding for the CFTC as one of the reasons.”

The Senate bill also provides the full $1.566 billion requested by the Administration for the SEC, an increase of $245 million over its 2012 funding level.  “While we share the concern expressed in the committee report over the SEC’s slow progress implementing Dodd-Frank reforms, we agree that adequate funding is a necessary component of an effective regulatory response,” Roper said.  “If Congress comes through with the funding level approved by the Senate appropriators, it will be incumbent on the SEC to show it can make good use of those funds by working efficiently to adopt strong and effective rules.” Meanwhile, the House financial services bill (H.R. ????) would provide the SEC with a more modest $50 million funding boost to $1.371 billion.  “However, what the House bill gives with one hand, it takes away with another, preventing the agency from spending its reserve fund as planned on badly needed information technology upgrades,” Roper said.  “Under this approach, any investment in technology upgrades would have to come at the expense of already stretched personnel and programs.”

Meanwhile, House appropriators renewed their efforts to subject the CFPB to the appropriations process beginning in 2014, but they did not propose the drastic funding cuts for the agency that they have in the past.  CFA was among 20 organizations, led by Americans for Financial Reform, that wrote to members of the House urging them to “oppose all proposals to weaken the structure, powers or funding of the Consumer Financial Protection Bureau,” including subjecting the agency to the appropriations process.  “Funding the CFPB through appropriations would saddle Americans with the cost of supporting the agency and allow big banks to thwart its funding through a politicized appropriations process that other bank regulators are insulated from — for good reason,” said CFA Legislative Director Travis Plunkett.

House Bill Would Subject CPSC to Costly Regulatory Hurdles

The Consumer Product Safety Commission (CPSC) would avoid damaging budget cuts in both the House and Senate funding bills, but the House bill would subject the agency to costly and time-wasting new cost-benefit and regulatory review requirements.  Included in the financial services appropriations bills that were reported out of both the House and Senate appropriations committees last month, the CPSC budget would be held flat at $114.5 million in the House bill, and would get a boost to $122.425 million in the Senate bill, the full amount of the president’s budget request.

On the other hand, the House bill includes two provisions that would undermine the agency’s ability to fulfill its mission to protect the public from unsafe products.  The first would require the Comptroller General of the United States to conduct an analysis of the benefits and costs of the Consumer Product Safety Improvement Act of 2008, even before it has been fully implemented.  The second would the Commission to conduct an extensive review of existing regulations, largely duplicating an evaluation the Commission already has well underway.

CFA joined with six other national consumer and safety groups to write to House Appropriations Committee members opposing these provisions as well as any amendments that might be offered “that would limit the CPSC’s ability to protect the public from unsafe products and that would use the CPSC’s limited resources to engage in unnecessary and burdensome analyses,” the groups wrote.  “Rather than seeking to divert critical government resources and valuable CPSC and GAO staff time on unnecessary and duplicative studies …, Congress should give the CPSC additional resources to address significant product safety hazards.”

The agency fared better in the Senate, where an expected effort to weaken or eliminate the agency’s authority to adopt new mandatory safety standards for window coverings failed to materialize.  CFA, Kids in Danger, Consumers Union, and Parents for Window Blind Safety wrote to members of the Senate Appropriations Committee in opposition to any such amendment.  The window covering industry, under the auspices of the Window Covering Manufacturers Association (WCMA), has been working on the voluntary standard since 1994, when the CPSC first requested that they do so.  “Since that time, in version after version, WCMA has refused to incorporate solutions to adequately address the strangulation hazard posed by cords in window coverings,” the groups wrote.  “WCMA has repeatedly shown that they are not interested in incorporating effective strangulation prevention solutions into the voluntary standard.  Given the industry’s refusal to address the known hazard in the voluntary standard, it is appropriate and necessary for a mandatory standard to be promulgated to effectively address this hazard.”

Bill to Strengthen Military Lending Act Protections Advances in Senate

As part of its consideration last month of the National Defense Authorization Act (S. 3254), the Senate Armed Services Committee approved amendments to the Military Lending Act that would strengthen protections against abusive lending practices targeted at servicemembers and their families.  The legislation would close loopholes in the definitions of payday and car title loans, encourage the Department of Defense to extend protections to installment loans, and ensure that non-resident military members and their families are covered by state credit protections for any form of state-regulated credit.  These loopholes in the law were identified in a recent CFA study on the record of the law five years after its passage.

CFA joined with nine other consumer and military organizations to write to senators last week urging them to oppose any efforts to delete or weaken the legislation when it is brought to the Senate floor for a vote.  “America relies on servicemembers to protect our country in a troubled world. As noted by the Department of Defense, we have a compact with servicemembers and their families to protect them from abuses that undermine their welfare and morale,” the groups wrote.  “Predatory lending that drains family funds, puts ownership of key assets at risk, and traps borrowers in abusive and unaffordable debt was prohibited by Congress in 2006. We strongly urge your support for amendments to the Military Lending Act to apply protections to products that currently harm servicemembers and to strengthen enforcement of the law.”

Consumer Groups Push Back Against Efforts to Evade Payday Lending Restrictions

Even as the Consumer Financial Protection Bureau (CFPB) begins gathering data on payday lending abuses, some in Congress appear intent on helping payday lenders evade both the CFPB and state supervision and enforcement of state usury and consumer protection laws.  CFA joined with Center for Responsible Lending and U.S. Public Interest Research Group in writing to members of the House of Representatives urging them to oppose H.R. 1909, the “Federal Financial Services and Credit Companies Charter Act of 2011,” and any similar legislation that may be introduced.

The legislation would create a federal charter for non-bank financial services providers – including payday lenders, check cashers and others – under the jurisdiction of the Office of Comptroller of the Currency (OCC).  For credit with less than one-year duration, these entities would be exempt from Truth-in-Lending Act requirements to disclose the cost of credit as an annual percentage rate (APR).  “Simply put, the bills constitute a sharp downward departure from the consumer protection standards established by Dodd-Frank,” the groups wrote.

“A federal charter for non-bank lenders would undermine progress made by states in curbing usurious and predatory lending, including ballot votes to cap rates in Ohio, Montana, Arizona, and hopefully later this year, in Missouri,” noted CFA Director of Financial Services Jean Ann Fox.  “As states crack down on usurious lending and the CFPB prepares to supervise payday lenders for the first time, it is no wonder that payday lenders are putting a big lobbying push behind a federal charter.”

CFA Recommends Improvements to FHFA Strategic Plan

Citing the continuing critical role that the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac continue to play in assuring access to mortgage credit for American consumers, CFA filed comments last month on a proposed strategic plan published for comment by the Federal Housing Finance Agency (FHFA).  “Fannie and Freddie are the only significant source of mortgage financing today besides FHA,” noted CFA’s Director of Housing Policy Barry Zigas. “The draft strategic plan is a critical roadmap for how FHFA plans to operate the two companies, and their decisions will impact consumers’ ability to get a mortgage at affordable rates.”

FHFA is the federal agency that oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks.  The agency placed Fannie and Freddie into conservatorship in September 2008 as their losses in the mortgage crisis burned through their capital reserves.  The companies have remained in conservatorship ever since, and the U.S. Treasury has injected more than $100 billion in capital in them to support their operations in return for senior preferred stock.

The draft plan lays out three key strategic goals that FHFA plans to follow in the next several years.  These include overseeing the companies’ safe and sound operation; assuring liquidity, stability and access to mortgage credit through the conservatorship; and conserving and preserving the enterprises’ assets.  CFA’s comments support the broad goals outlined in the plan and endorse the plan’s focus on assuring that the companies continue to play their crucial role in housing finance while alternatives are being developed.  CFA also:

• made specific recommendations for strengthening the role of consumer protection in FHFA’s oversight model and for improving access by low and moderate income and minority borrowers, community banks and credit unions to the GSE model and its benefits;
• urged FHFA to pay close attention to the “brain drain” at the two companies as their future remains cloudy, and its potential impact on their ability to properly fulfill their functions; and
• warned FHFA to avoid using increases in guarantee fees – which would be passed onto consumers in the form of higher mortgage rates – for purposes other than assuring that they reflect actual projected credit risks.

CFA Supports DOJ on eBook Price-Fixing Case

Refuting arguments of bricks and mortar retailers, CFA filed comments with the Department of Justice last month explaining why the settlement reached between DOJ and three major publishers in the eBook price-fixing case is in the public interest.  In a press statement released in conjunction with the comment filing, CFA Research Director Mark Cooper said the arguments against the settlement are “based on misrepresentations of the purpose and intent of the antitrust laws and faulty analysis of the economics and nature of competition in the digital era of book publishing.  He added, “The self-interested claims of brick and mortar retailers and celebrity authors who profit from price fixing at the expense of consumers must not mislead the court into thinking:  (1) that the public interest lies in anything short of restoring full price competition to the book publishing marketplace or (2) that the harm to competition inflicted by the agency cartel price-fixing for digital distribution of books at a critical moment in the nascent development of new digital business models can be repaired without a significant period of close oversight and scrutiny.”