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NAIFA Analysis of Consumer Financial Protection Agency and Impact on Insurance Agents and Financial Advisors

Issue: Financial Services Regulatory Reform

Date: July 1, 2009

Action Taken: Yesterday the U.S. Treasury Department released draft legislation creating a Consumer Financial Protection Agency (CFPA).  The “Consumer Financial Protection Act of 2009” would create a new federal agency to oversee consumer financial products, including bank and credit products such as credit cards and mortgages.  Modeled on the Consumer Product Safety Commission, the CFPA would have broad authority to establish and enforce rules governing financial products and services and the persons who provide them.  

Impact on Insurance Agents and Financial Advisors: For NAIFA members, the most important aspects of the proposal are:

  1. The bill specifically excludes most insurance activities from CFPA oversight.  The only insurance products covered by the proposal are credit insurance, mortgage insurance and title insurance.
  2. With respect to securities products and services, the bill specifically provides that the CFPA has no authority over persons regulated by the Securities and Exchange Commission (SEC).  This would include broker-dealer registered representatives.  Moreover, the bill specifically excludes from coverage investment advisers subject to oversight by the SEC.  Investment advisers not subject to SEC regulation or registration would be subject to CFPA oversight.  Thus, investment advisors regulated only by the state securities regulators would be subject to CFPA regulation, as well.
  3. The CFPA would have authority to oversee “financial advisers” who provide “financial and other related advisory services.”  It is not clear what this term covers and how it differs from “investment advisers.”  Presumably, it is not intended to cover advisers who are offering that service in conjunction with sale of insurance products or those who are registered with the SEC.  We will seek further clarification as the proposal advances through Congress.
  4. The bill would require the CFPA to coordinate with the SEC and other regulators, including state insurance and securities regulators (as necessary), to provide “consistent regulatory treatment” of financial products and services.  Specifically with respect to the SEC, the bill would require CFPA to “consult and coordinate” with the SEC in connection with any investment product that is the same type of product or competes directly with a product subject to CFPA oversight.
     
    Learn More: Read further analysis of the CFPA

Background: The idea of the Consumer Financial Protection Agency was conceived by Elizabeth Warren, a Leo Gottlieb Professor of Law at Harvard Law School. Warren currently serves as chair of the Congressional Oversight Panel that oversees the Troubled Assets Relief Program. Most recently Warren appeared before the House Financial Services Committee to testify about her idea to create a CFPA. NAIFA President Cliff Wilson also testified at the hearing. To view archived footage of the hearing click here

Next Steps: NAIFA is currently working closely with key Congressional and Administration officials to address the various provisions of the draft proposal that will impact NAIFA members. House Financial Services Committee Chairman Barney Frank has already announced that he plans to report out legislation to create a CFPA before Congress adjourns for the August recess. According to Frank “While the committee will, of course, exercise its own judgment on the specifics and we have already had a thorough hearing on the matter, it is helpful to have the administration’s proposals as well because I believe there is a great deal of common ground between us.  And with their text in hand we can now proceed to draft and approve a bill in committee before the August recess.”

House Financial Services Republicans are opposing the plan. In a statement by House Financial Services Ranking Member Spencer Bachus (R-AL), “Republicans have a consumer protection proposal built on the premise that the best way to protect consumers is not through the creation of another bureaucracy accountable to no one but by consolidating the regulatory system and holding regulators accountable for both consumer protection and safety and soundness. Our plan gives regulators more investigative and enforcement tools, and empowers consumers to make their own financial decisions by streamlining disclosures.”

The timing for action by the Senate is unclear; but Senate Banking Committee Chairman Chris Dodd has released statements indicating his support, at least in concept, for an independent consumer protection agency. In conversations with the Chairman’s staff, it appears he is still planning to pursue a major financial services overhaul bill this year.

NAIFA Staff Contact: Jill Edwards, Assistant Vice President – Federal Government Relations, at jilledwards@naifa.org.

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