Financial Watchdog for Consumers Moves Ahead in Congress

• A compromise was reached on another Obama proposal, to make lenders comply with state laws when they offer stronger consumer protection than federal law. Banks and their Republican allies in Congress argued strongly for the current system in which federal laws preempt state laws, saying that a change would force the industry to deal with 50 separate regulators instead of one in Washington. In the end, the committee decided that states could enforce their laws, but a federal official could override the state laws if they “significantly interfere” with national banks’ business.

• Issuers of credit, mortgage and title insurance are also exempt from CFPA oversight in the House committee’s bill. “The problem with these products is that they are virtually worthless, and consumers get stuck paying for them,” Susan Weinstock of the Consumer Federation of America says of such insurance. “We estimated that in 2004 alone, consumers overpaid about $17.5 billion for credit insurance alone.”

Consumer advocates more pleased than lenders

Still, Weinstock considers the CFPA legislation “a huge win for seniors and other consumers,” an opinion shared by other consumer advocates and the White House.

The American Bankers Association, which has spent millions of dollars lobbying Congress this year, considers the agency unnecessary and restrictive.

“The American Bankers Association supports the goal of improved consumer protections,” Floyd E. Stoner of the nation’s largest bankers group said in a prepared statement. “However, ABA remains opposed to this legislation because we still have major concerns with some principal areas, including restrictions on preemptions standards for national banks and savings associations, and the very broad, ill-defined authority that is granted to this new agency that could be used to justify essentially any regulatory action.”

Sid Kirchheimer writes about consumer and health issues.