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Weekly UpdatesPresident Obama's plan to create the Consumer Financial Protection Agency was rolled out July 8 in HR 3126 (Rep. Barney Frank, D-Mass). The proposal is a massive overhaul, consolidation and centralization of federal regulatory powers under an agency run by presidential appointees, and assisted by a consumer advisory commission that will meet at least twice a year.
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HR 3126 is co-authored by 12 other House Democrats, including Brad Sherman, Jackie Speier, Maxine Waters and others representing California.
Of special concern to CPAs is the fact that individuals or organizations "acting as financial adviser to any person, including providing financial and other related advisory services, providing educational courses and instruction materials to consumers on individual financial management matters or providing credit counseling, tax planning or tax preparation services to any person," would be included in the regulatory scheme.
The Agency is to be funded by contribution and enforcement money received from regulated entities. The funding source implies that those that are regulated will have to register with the Agency so fees can be collected.
Broad Authority
One important provision of the bill is the authority to prohibit or impose conditions or limitations on the use of mandatory pre-dispute arbitration agreements. Attorneys and others who hold a fiduciary duty in connection with a trust arc exempted from the proposed law's provisions.
The Agency also will have broad regulatory and enforcement authority, including the power to require restitution; impose fines of$5,000, $25,000 or $1 million per day; and refer entities to the US. Attorney General for possible criminal prosecution.
Further, the Agency will have broad authority to exclude entities and individuals from its regulatory oversight.
As it is written, the bill would appear to include virtually every CPA under its purview, along with organizations such as CalCPA that promote financial literacy.
Cure for What Ails System?
Proponents of the bill argue that a single agency responsible for the entire financial services sector would deter companies from organizing and reorganizing themselves from thrifts to banks and mortgage companies--to evade what are perceived to be onerous regulations.
Service Employees International heralded the proposal and said, "Unfair financial (practices) are a big part of what caused the economic meltdown. And thanks to Wall Street's greed, millions of Americans have lost their homes, their jobs and their retirement savings. Thankfully, there's a proposal in Congress for a strong, new agency--one that's accountable to the public, and not to the big banks--that will put in place some common sense rules to protect consumers and balance the financial playing field."
We can only hope that common sense will be applied when determining whom this Agency will actually regulate. The banking industry is concerned that the Agency will separate the regulation of financial products from the regulation of financial institutions, and it would actually limit the availability of credit and consumer choices.
Opposition
The bill faces opposition from both sides of the aisle based on a concern that it would create a new bureaucracy without providing real regulation, and will take away power from existing federal agencies that are charged with consumer protection, including the Federal Trade Commission.
Rep. John Dingell (D-Michigan) is reportedly concerned about the possible diminishment of the FTC's role.
Victim Relief
The proposed law would authorize the establishment within the U.S. Treasury of a victims' compensation fund: the Consumer Financial Protection Agency Civil Penalty Fund. If the Agency obtains a civil penalty against any person in any judicial or administrative action, the money in the fund would be made available to the Agency for payments to victims of activities for which civil penalties have been imposed under the tide.
AICPA's Stance
The AICPA is reviewing the proposal and developing a position for possible action. An advisory sent to AICPA members noted, "We support the need for stronger consumer protections. The events in the housing and banking industries that triggered the economic crises demonstrate too well the weaknesses in our regulatory system, as well as serve as proof of the need for consumers to improve their financial literacy skills."
The AICPA did, however, express concern that the bill docs not recognize that CPAs are licensed by state boards of accountancy, operate under strict ethical standards and, with regard to federal tax-related services, have to meet the strict regulatory requirements of the IRS.
CalCPA will keep members posted on this far-reaching legislation, its progress in Congress and its impact on CalCPA members as bothCPAs and citizens.
by Bruce C. Allen & Jeannie Tindel
Bruce C. Allen is CalCPA's director of government relations. Jeannie Tindel is CalCPA's director of legislation.
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