The Bush Administration's Blueprint for Modernized Financial Regulatory Structure, released today, includes a proposal to consolidate consumer protection into a single federal agency. The press release provides a link to the full 218-page Blueprint. Although I have not digested the entire document, consumer protection strikes me as a bit of an afterthought in the overall scheme. The new agency, intended to consolidate functions now served to some extent by the FTC, Federal Reserve, HUD and banking regulators, would take charge of "business conduct" rules, including disclosure law, unfair and deceptive practices rules (including Section 5 of the FTC Act) and anti-discrimination laws like the Equal Credit Opportunity Act. Not surprisingly, the Blueprint is filled with free-market rhetoric ("price controls always result in inefficient outcomes"). Although unfair practice regulation is mentioned, one gets the sense that disclosure and nondiscrimination are the touchstones of the Treasury Department's vision for consumer protection.
While the Blueprint seems to preserve a role for state financial institutions regulators, it would impose federal oversight of the quality of state licensing for mortgage originators. More significantly, it calls for the Federal Reserve to take sole responsibility for regulating lender conduct in the mortgage market. Although it is not explicit, there seems to be a call for federal preemption of state mortgage regulation. This proposal is troubling, given the activity at the state level in regulating predatory mortgage practices (with North Carolina often cited as a model) during a time when Congress took virtually no action to curb mortgage abuses. In the enforcement arena, state regulators have been far more active than the FTC, HUD or the Fed in taking strong action against subprime market leaders, like UC Lending, First Alliance Mortgage, Household Finance, and Ameriquest. Consumer advocates have been understandably concerned about proposals that limit or preempt states' roles in writing and enforcing rules for the marketplace.