WASHINGTON (Legal Newsline)-The recent Senate proposal that would create a consumer financial protection agency under the umbrella of the Federal Reserve drew fierce criticism Tuesday from the leader of the nation's securities regulators.
The plan floated by U.S. Sen. Chris Dodd, the Connecticut Democrat and chairman of the Senate Banking Committee, is the latest effort to advance foundering legislation to create the agency sought by President Barack Obama.
Now called the Bureau of Consumer Financial Protection, the agency would have a director appointed by the president, and be charged with making rules for financial products including mortgages, credit cards and payday loans. The agency would not have authority over financial professionals licensed at the state level, such as accountants.
The Bureau of Consumer Financial Protection would also be charged with establishing an Office of Financial Literacy.
Among other complex facets, the Dodd plan would allow corporate shareholders to have advisory votes on executive pay and to nominate directors for the boards of publicly-held companies through proxy ballots.
The Dodd plan drew an especially chilly reception from Denise Voigt Crawford, president of the North American Securities Administrators Association.
"In seeking to gain bipartisan support for his vision of creating a 21st century solution for today's financial services regulatory structure, Senate Banking Committee Chairman Christopher Dodd has offered a mixed bag of proposals that, in some cases, substitute accountability and protection with delay and dilution of the protections Main Street investors deserve immediately," said Crawford, securities commissioner in Texas.
She said the bill only gives the U.S. Securities and Exchange Commission discretionary authority to ban mandatory predispute arbitration in securities cases.
"NASAA believes investors deserve choice and that mandatory securities arbitration must end now," Crawford said.
On the plus side, Crawford said her group is pleased with a part of Dodd's plan that would increase state regulatory authority over investment advisers with assets under management of $100 million or less, an increase from the current threshold of $25 million.
"But we are profoundly disappointed that the latest bill draft has removed the single most important protection for individual investors - requiring that stockbrokers and insurance agents providing investment advice act in the best interest of their clients," she said. "Instead of offering protections, the reform package offers delay in the form of yet another study. Investors, particularly senior investors, need help and clarity now."
For their part, a group of Democratic state attorneys general have called on the Senate to approve the creation of a standalone financial protection agency that would not preempt their authority.
Attorneys general, including Lisa Madigan of Illinois and Tom Miller of Iowa, are calling for concurrent jurisdiction of consumer protection laws.
They argue that efforts by state attorneys general should be independent of existing federal banking regulators such as the U.S. Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Reserve and the U.S. Treasury Department.
"We need to make sure the states are still empowered to do their work," Madigan recently told Legal Newsline, noting that that in the past nine years federal consumer protection authorities have made 11 enforcement cases against predatory lenders, while state AGs have filed more than 8,000 such cases.
Madigan said the federal government's efforts to protect consumers have stopped at preserving the "safety and soundness" of the nation's financial and banking industry.
But on protecting individuals, she said: "Federal banking regulators have a track record that is nothing short of dismal, and we've got to make sure the feds are finally on the beat. Ripping people off is not a sustainable business model."
From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.
