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.
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