The grand plan for a new federal agency that would fight for consumer rights in financial transactions has been given a hatchet job by industry groups, a consumer group charged on Monday.
The latest version of legislation (PDF) that would create the Consumer Financial Protection Agency carves out wide-ranging exceptions for the nation's credit reporting agencies, car dealerships, realtors, and tax preparation firms, among others, according to Consumer Watchdog, an advocacy group. Those industries would be largely exempt from the new regulator, according to the most recent draft of the legislation, sponsored by Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee. The committee will consider changes to the proposal at a formal markup session scheduled for Wednesday.
Carmen Balber, head of Consumer Watchdog's Washington, D.C., office, said the new agency won't be able to do its job unless it has oversight over firms like Experian, Equifax and Trans Union, which help determine consumer interest rates through credit scores, or car dealerships, which engage in complex loan transactions.
"A new consumer protection agency should be looking at any company that provides a loan or has impact on loans," she said. If consumers who feel they've been treated unfairly by these industries can't turn to the new agency, they won't know where to turn, she said, adding, "That's the kind of confusion over what's covered by what (agency) that this is legislation is supposed to fix."
Many members of Congress, and Frank in particular, have received political contributions from the credit bureaus. The three firms have given about $1.6 million to Congress since 2002, including $40,000 to Frank.
Balber sees a connection between the political donations and the new provision that benefits the credit reporting agencies.
"Companies that collect, analyze and sell our private financial information are off the hook in the current bill," Balber said. "Campaign contributions to Congress should not buy the Big Three data collectors an exemption from oversight."
But Steven Adamske, a spokesman from Frank, accused Consumer Watchdog of grandstanding.
"It only demonstrates the shallowness of their argument, that they are saying there's some kind of cause and effect (between contributions and changes in the legislation)," he said. "If they spent more time talking to members of Congress and being a part of the process and less time writing press releases they would be more effective at helping consumers. … I don't think anyone can call into question (Frank's) dedication to protecting consumers."
Adamske said the exemptions would be considered at Wednesday's meeting.
"I'm sure members of the committee will try to change the bill in one direction or another," he said. "It's possible exemptions could be removed. … It's possible the list could be expanded."
Agency powers shrink
As the bill stands now, many industries would not face regulation by the new agency, including:
- Merchants, retailers, and sellers of non-financial services.
- Retirement plan providers and educational savings 529 plan providers.
- Accountants, tax preparers like H&R Block and attorneys.
- Real estate agents acting to buy, sell, or rent residential properties. Mortgage lenders would be covered.
- Auto dealers who lease or sell cars and market financing arrangements.
- Credit reporting agencies when they are "assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties."
The current version of the law also includes an explicit statement that the agency would have "no authority ... to establish a usury limit applicable to an extension of credit."
None of those exceptions was in the initial version of the Consumer Financial Protection Agency proposed by the Obama administration.
Balber said corporate influence led to the changes.
"Every one of those exemptions is the result of intense lobbying efforts by those industries," Balber said. For example, she said, "The auto dealers say, 'We are struggling, you put these new rules on us.' But the problem is by carving out all these exemptions you are making the job harder to for the agency to look at the whole consumer credit transaction."
But Adamske said the new limits are designed to focus the new agency on the kinds of consumer credit transactions that led to the recent economic crisis, such as predatory loans. Credit card issuers and other direct lenders would still be covered by the new agency. Meanwhile, many of the exempted industries are regulated by other agencies, he said.
"Real estate agents are not regulated at the federal level," he said.
While designing the agency and consulting with industry groups, many complexities arose, Adamske said. For example, a dentist who allows patients to pay large bills over time might have been included had earlier language not been amended, he said.
"We got tripped up on a lot of issues like that," he said. "We didn't want to lose focus from the predatory lending that got us into this mess."
But Balber said consumers won't appreciate the distinction and need one agency to look out for their interests.
"Whether you're denied a loan because of a bank, or because of a credit score determined by your credit report, at the end of the day you've been denied a loan. It's the same thing to you," she said. "So if those companies are excluded, then consumers aren't going to be protected."
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