Two dozen state attorneys general have asked Congress to quickly draft legislation on an Obama administration proposal to create a new federal consumer protection agency to better regulate financial service markets.
The group of mostly Democratic attorneys general from 23 states and Guam co-signed a letter sent Monday to members of Congress on the key financial committees that are considering the proposed Consumer Financial Protection Agency.
“The current financial crisis, caused in part by irresponsible subprime lending and inadequate oversight, has demonstrated the need for comprehensive and effective consumer protection and enforcement at the federal level,” the letter says. “We believe an independent federal agency combined with joint enforcement by state officials is the best option for meaningful consumer protection in this area.”
The administration wants the new agency to oversee a vast range of financial products such as mortgages, credit cards and loans. The agency, if enacted by Congress, would consolidate many of the regulatory duties that are spread over several agencies, such as the Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. (FDIC).
The White House says the new agency would help establish simpler and more transparent rules and would avoid needless duplication of regulations. It also is designed to plug regulator cracks the administration says allowed some financial institutions to engage in risky behavior that contributed to the global financial crisis that came to a head last autumn.
The agency would have broad power to write and enforce rules on financial products and services. But it also would require financial firms to follow more state-level consumer protection rules. Many states have complained in recent years that federal bank regulators have shielded large financial firms from having to follow state laws, allowing them instead to abide by uniform federal rules.
“Working with the states, this agency will be able to prevent and root out unfair and deceptive practices by the financial services industry,” said Iowa Attorney General Tom Miller, who organized the letter sent to Congress. “We appreciate the fact that this legislation recognizes the key role that state attorneys general serve in spotting new frauds and abuses, responding to citizen concerns, and enforcing state laws.”
The letter-signing effort also was spearheaded by North Carolina Attorney General Roy Cooper, Illinois Attorney General Lisa Madigan, Ohio Attorney General Richard Cordray and Massachusetts Attorney General Martha Coakley.
But the heads of several federal financial regulators have clashed with the administration over its plan for the new agency.
Federal Reserve Chairman Ben S. Bernanke said last month that stripping his agency of consumer regulatory powers could hurt the economy because “risk assessment and compliance monitoring of consumer and prudential regulations are closely related.”
FDIC Chairman Sheila Bair also has argued for limits on any new agency, saying that bank regulators should continue to examine and enforce standards, with the new agency serving as a backup.
Financial institutions worry that tighter controls and more regulations would stifle investments and innovation in the financial world and possibly slow the flow of capital through the markets, a scenario blamed for last year’s Wall Street crises.