NAIFA GovWatch

House and Senate Hold Hearings on Consumer Protection and Financial Products and Services

Issue: Financial Services Regulatory Reform

Date: July 14, 2009

Action Taken: Today two hearings were held to address enhancing consumer protections in the financial services marketplace. The first hearing, held in the Senate Banking Committee, addressed the Administration’s proposal to create a Consumer Financial Protection Agency (CFPA). On the House side, the Financial Services Committee heard testimony from Securities and Exchange Commission Chairman Mary Schapiro regarding the SEC’s agenda.

Senate Hearing: Testifying at today’s Senate Banking Committee hearing was Treasury Assistant Secretary for Financial Institutions Michael Barr. Michael Barr was one of the lead authors of the Administration’s proposal to create a CFPA. Because the proposal specifically excludes from the CFPA’s jurisdiction most insurance activities, as well as products and services currently regulated by the SEC; and specifically includes investment advisors regulated by the states, one major question NAIFA has is the intent of additional language that grants the CFPA authority to oversee “financial advisers” who provide “financial and other related advisory services.” Senator Tim Johnson (D-SD) sought clarity for the provision and Asst. Secretary Barr responded that the language of the bill is primarily intended to root out marketplace scams that are connected to unregulated institutions that claim to offer “financial advice” to consumers.

House Hearing: On the House side, Chairman Schapiro testified on a myriad of issues in which the SEC is currently engaged. Of particular interest to NAIFA members is a recently introduced proposal by the Administration to harmonize the regulation of broker dealers and investment advisors, and to hold them to a fiduciary standard of care. NAIFA is concerned that such a bright line standard is not practical for all client engagements – particularly when a registered representative is under contract to provide only a set list of products and receives commission for those products. When asked by Rep. Scott Garrett (R-NJ) to clarify how such a standard would work, Chairman Schapiro replied that the fiduciary standard would only apply in the event an individual gives financial advice. With regard to how to address the commission issue, Schapiro stated that she is unsure how the SEC would directly address that but in general she supports more disclosure for compensation schemes.

To read a complete report of the Senate and House hearings click here.

Next Steps on CFPA: NAIFA, in coordination with our industry partners, will be sending a letter to Capitol Hill this week that opposes the inclusion of all insurance from the scope of the CFPA proposal. NAIFA maintains that paying the claim is the ultimate consumer protection and therefore consumer protection regulation and the regulation of the safety and soundness of an insurance product should be done together and not separately. NAIFA will also work to tighten the “financial advisor” language so as to clarify the intent within the scope of the bill.

Next Steps on IA/BD Harmonization Effort: NAIFA will oppose the Administration’s proposal to impose a fiduciary standard of care on all investment advisors and broker dealers. NAIFA will continue our education efforts with Congress, the Administration, the SEC, and FINRA that such a proposal, while noble in its effort, is not practically workable in the real world. At its core, the proposal could ultimately result in advisors only able to offer a fee for service which would likely yield an underserved middle market that cannot afford to pay a fee in addition to the cost of a financial product. NAIFA instead supports efforts such as the NAIC Producer Licensing Model Act that requires a producer who receives a fee from a customer and receives a commission from an insurer, to disclose to the consumer that he/she represents the insurer and will receive a commission for the sale. NAIFA also supports efforts in the states to require the disclosure of the total costs associated with the sale of an insurance product.

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

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