CFPA: Better Financial Regulation or a Roadblock to Innovation & Service?

New legislation currently in the Senate creates a new agency that will police mortgages, credit cards, personal loans and home appraisals resulting in significant new liabilities for credit card and other consumer lending marketers— and their communications firms could be put in the line of fire, too.

On October 22, 2009 the House Committee approved sweeping new financial industry regulations that if passed will fundamentally change the financial services landscape and the businesses that service these financial firms– particularly the communications industry. The Consumer Financial Protection Agency Act (H.R. 3126) creates a new standalone watchdog agency for the financial services industry, which in theory is responsible for promoting “transparency, simplicity, fairness, accountability, and access in the market for consumer financial products or services.”

Simply put, this agency is responsible for looking out for the financial interests of consumers by banning unfair and deceptive practices, which regulators hope could mitigate another economic and financial meltdown like the one leading to this recent recession.

One of the biggest points of contention with this bill is the “unfairness” rulemaking authority, which many opposing this bill believe is not only inconsistent with the definition of the Federal Trade Commission (FTC), but also goes far beyond the similar authority of the FTC under current law. “Unfairness” has always been highly elusive and vague concept which provides regulators with loose authority when not rooted in more concrete fundamentals.

During a webinar hosted by the Council of PR Firms, Dan Jaffe, Executive Vice President of Government Relations for the Association of National Advertisers, touched on some of the intricacies of this bill as well as the implications for both the financial services industry and communications agencies that work in the industry. According to Jaffe, the House CFPA bill will make four fundamental changes in the regulatory authority of the FTC:

  • Expedited Rulemaking Authority
  • Immediate civil penalty authority
  • No Department of Justice oversight of civil penalty cases
  • Expanded liability for “aiding and abetting” an unfair act or practice

The most critical of these provisions to the communications industry of course is the latter – aiding and abetting. This would give the FTC the authority to pursue companies or persons that aid or abet a violation of the FTC Act, which would radically change the business landscape for PR firms, advertising agencies and other media companies that play a role in the communication/sale/delivery process of financial information and services to consumers.

So what does this mean exactly? Well that is something that regulators, policymakers, financial executives and communications professionals continue to hash out at this very moment. Those opposing the bill believe the agency will do little more than enhance the government’s ability to interfere with private business practices, while supporters of the bill see it as a necessary step toward preventing a repeat of the financial carnage witnessed over the past two years.

What we do know is that in its current form, the CFPA bill reflects the largest financial regulation restructuring since the Great Depression. And one thing that most constituents seem to agree on is that if this bill is passed, it will not only reshape financial regulation as we know it, but also have a profound impact on the daily business practices of both financial services companies and the firms that service the industry.

So what’s your vote? Is the CFPA a necessary piece of the financial reform puzzle to protect consumers from abusive financial practices that regulators have failed to reign in during the past decade? Or is this a gratuitous layer of regulation that will reduce financial product choices and stifle innovation – making it difficult for banks to serve their consumer and business clients?

To view the CFPA bill in full, click here.

(photo by Dolceta Online Consumer Education)


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