Insurers, banks criticize Obama's proposed consumer watchdog agency

Life insurers and banks bashed the administration’s proposal for a Consumer Financial Protection Agency today at a House Financial Services Committee hearing. “We do not believe … that the interests of life insurance consumers would be well-served by subjecting life insurance products to the additional jurisdiction of the CFPA,” Gary Hughes, vice president and general counsel of American Council of Life Insurers Executive of Washington, said in prepared testimony at the hearing. Life insurance products are already heavily regulated by the states, Mr. Hughes said. There is no evidence that life insurance products contributed to the present crisis, and the lack of a federal regulator over the life insurance industry means a consumer regulator would not have comprehensive understanding of underwriting necessary to oversee carriers, he said. Life insurers and other insurance companies have long implored Congress to give them the option of being federally regulated. However, the Obama financial service regulatory reform plan does not include that option. The Obama plan only calls for an Office of National Insurance within the Department of the Treasury, which would gather information and coordinate policy development concerning insurance, but would not have regulatory power. Unless a federal regulatory body is given authority to regulate insurers for solvency, the role of any federal body should only be advisory, Mr. Hughes said. Banks, especially community banks, would face a “potentially massive new regulatory burden” if Congress creates the CFPA, Edward Yingling, president and chief executive of the American Bankers Association in Washington, said in his prepared testimony. “It appears that the new agency would have vast and unprecedented authority to regulate in detail all bank consumer products and services,” even going so far as to allow the proposed agency to create its own “plain-vanilla” products that banks would be mandated to offer, he said in his testimony. “All this cost, regulation, conflicting requirements and uncertainty would be placed on community banks that in no way contributed to the financial crisis,” Mr. Yingling said. State insurance regulators, who oppose an optional federal charter, also told the committee that a new agency to regulate consumer protections in insurance is not necessary. Such an agency “would cause the kind of overlaps that lead to pre-emption of state laws and rules designed specifically to address the complexities of insurance,” said Maryland Insurance Commission Ralph Tyler, who testified on behalf of the National Association of Insurance Commissioners of Kansas City, Mo. But congressional consultant and prominent academic Elizabeth Warren, who first proposed the idea of the consumer financial protection agency, said in her testimony that the CFPA would “fix the broken credit market.” She is chairwoman of the Congressional Oversight Panel, which was created to oversee the Troubled Assets Relief Program, and a professor at the Harvard Law School in Cambridge, Mass. Consumers are unable to compare financial products because financial products have become too complicated, Ms. Warren said in her testimony. “Today’s business model is about making money through tricks and traps,” she said. Many consumers do not understand or cannot identify key mortgage terms, and there is no indication that credit card contracts will get any shorter and more manageable, Ms. Warren said. “Consumers who face financial documents that do not communicate the basic terms of a credit agreement cannot make accurate predictions about how much risk they are taking on and cannot make effective comparisons among products,” she said. The CFPA would reduce systemic risk by restricting or outlawing risky consumer products, such as high-risk high-profit loans, and would help develop simplified mortgages, credit cards and car loans, Ms. Warren said.