Treasury pushes for new consumer protection agency

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By Sean Lengell

The current financial crisis is proof that a new regulatory agency is needed to protect consumers and investors from scams, a senior Treasury Department official told a congressional panel Wednesday.

"It is time to put consumer protection responsibility in an agency with a focused mission and comprehensive jurisdiction over all financial services providers -- banks and non-banks," said Assistant Treasury Secretary Michael Barr before the House Energy and Commerce subcommittee dealing with commerce and consumer protection.

The House this summer is considering President Obama's proposal to create the Consumer Financial Protection Agency, which would be designed to offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

The White House last month sent the House a 152-page draft of a bill to create the agency.

The agency, if enacted by Congress, would consolidate many regulatory duties that are spread over several agencies, such as the Federal Reserve and the Federal Trade Commission (FTC).

Mr. Barr said the current regime is a "fragmented system of regulation designed for failure." Banks and other financial institutions routinely compete in the same consumer markets yet are subject to two different and uncoordinated federal regulators.

"It is time for a level playing field for financial services," he said.

The current regulatory system often allows financial institutions to shop for the supervisory agency that will be the least restrictive, Mr. Barr said.

"Fragmentation of the supervision of banks and thrifts only makes this problem worse," he said.

FTC Chairman Jon Leibowitz told the subcommittee that he supports the plan in principle but has some concerns, saying some provisions could lead to delays in prosecuting fraud cases, where time is of the essence, he said.

Mr. Leibowitz added that any new agency must work in concert -- not unilaterally with existing regulatory agencies.

"Bad guys do not always act in silos," he said.

The proposal generally has been praised by Capitol Hill Democrats but met with skepticism by Republicans, who say a new agency is unnecessary and only would add to a bloated federal bureaucracy.

Financial institutions also have argued that tighter controls and more regulations would stifle credit and innovation in the financial world and possibly slow down the flow of capital through the markets, a scenario blamed for last year's Wall Street meltdown.