Congress appears set to ignore President Obama's proposal that banks be required to offer "plain vanilla" financial products such as 30-year fixed-rate mortgages, giving the banking industry an early victory in its fight with the administration over how to reform the financial-services sector.
Barney Frank (D-MA) chairman of the House Financial Services Committee waits for President Barack Obama to speak about the global financial crisis at Federal Hall in New York, September 14, 2009. (REUTERS/Jeff Zelevansky)
Instead, House Financial Services Committee Chairman Barney Frank will forge ahead with plans for a watered-down Consumer Financial Protection Agency (CFPA) -- a blow to the administration's push for tighter regulations and more control over the banking and financial-service industries.
In a Tuesday memorandum from Mr. Frank to Democratic members of his committee that was obtained by The Washington Times, the Massachusetts Democrat said he was making several changes to the president's plan "to make clear that CFPA will not disrupt merchants, retailers and other nonfinancial businesses or subject banks and other depository institutions to needless additional regulatory burdens and costs."
Key among those changes is Mr. Frank's decision to omit the "plain vanilla" mandate from his pending CFPA bill.
So-called "exotic" financial products -- particularly subprime mortgages that typically offered low introductory payments that later ballooned in size -- have caused soaring default rates and were considered a major factor in last year's financial crisis. The administration had wanted to ensure that banks and other mortgage lenders give customers the option of less risky fixed-rate and simple adjustable-rate home loans.
But the mandate for "plain vanilla" products has appeared politically unattainable amid growing opposing from financial institutions, Republicans and even some Democrats.
Forcing banks to offer such products would mean that financial products not labeled "plain vanilla" would be ripe for lawsuits, said Scott Talbott, a spokesman with the Financial Services Roundtable, which represents some of the nation's biggest financial-services firms.
"The government should not dictate products," he said.
The proposal also was expected to fall flat in the Senate, where even some Democrats questioned the wisdom of mandating "vanilla" products.
Kirstin Brost, a spokeswoman for Senate banking committee Chairman Christopher J. Dodd, told the Associated Press that the Connecticut Democrat "has a hard time seeing how plain vanilla would work," but he is still working with his colleagues to draft the legislation.
Mr. Frank also is calling for "nonfinancial" businesses, such as merchants and retailers, to be exempt from CFPA oversight, according to the memo.
But Mr. Frank's revised plan still would create a new agency with many new powers. It would monitor the fine print on such products as mortgages and credit cards, and require that lenders be upfront about the cost of their products.
It also 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.
The financial-services industry has waged an aggressive advertising campaign against the proposed agency, saying it would stifle investment and innovation in the financial world and possibly slow down the flow of capital.
"There were some fissures that became apparent around mid-July when people said, 'Wait a minute, what does this thing really do?' " said one banking industry official. "It's really a huge government overreach."
Copyright 2009 The Washington Times, LLC
Post a Comment