July 24, 2009
Comptroller Dugan Supports Regulatory Reform Plan, Urges Revision to Some Details
WASHINGTON — Comptroller of the Currency John C. Dugan today told Congress that he supports efforts to enhance consumer protection standards for financial service providers, but expressed significant concerns with some elements of the proposed Consumer Financial Protection Agency.
"It makes sense to consolidate all consumer protection rulewriting in a single agency, with the rules applying to all financial providers of a product, both bank and nonbank," Mr. Dugan said in testimony before the House Financial Services Committee. "But we believe the rules must be uniform, and that banking supervisors must have meaningful input into formulating them. Unfortunately, the proposed CFPA falls short on both accounts."
The rules would not be uniform because the proposal expressly authorizes states to adopt different rules and would repeal federal preemption that has allowed national banks to operate under uniform federal standards. This radical change will make it far more difficult and costly for national banks to provide services to consumers – costs which will ultimately be borne by consumers, the Comptroller said. To provide meaningful input into rules from banking supervisors who are most familiar with the activities of the firms, the proposal must be changed to allow more banking supervisors on the CFPA board and provide a formal mechanism for banking supervisor input.
"The CFPA should not take consumer protection examination and enforcement responsibilities away from banking agencies," Mr. Dugan said. "To the extent the banking agencies have been criticized for consumer protection supervision, the fundamental problem has been with the lack of timely and strong rules – which the CFPA would address – and not the enforcement of those rules."
"Moreover," the Comptroller said, "moving these banking agency functions to the CFPA would only distract it from its most important and daunting implementation challenge: establishing an effective examination and enforcement regime for the 'shadow banking system' of the tens of thousands of nonbank providers that are currently unregulated or lightly regulated, like the nonbank mortgage brokers and originators that were at the heart of the subprime mortgage problem."
Comptroller Dugan also supported designating the Federal Reserve Board as the consolidated supervisor of systemically significant financial firms, but said "the proposal goes much too far." By granting new broad authority to the Federal Reserve to override the primary banking supervisor on standards, examination, and enforcement, the proposal would undermine the authority – and the accountability – of the banking supervisor, "and we strongly oppose it," Mr. Dugan said.
The Comptroller voiced support for establishing a Financial Stability Oversight Council to identify and monitor systemic risk; for new authority to resolve systemically financial firms; and for imposing more stringent capital and liquidity standards to help address their heightened risk to the nation's financial system. He also supported a proposal to merge the Office of Thrift Supervision with the OCC while phasing out the thrift charter.