NCPA - National Center for Policy Analysis


December 8, 2009

Congress is considering establishing a new agency to regulate consumer financial products and services -- everything from home equity loans to credit cards to pawnshops, say Terry Neese, a Distinguished Fellow, and Bethany Lowe, a research assistant, both with the National Center for Policy Analysis.

Under legislation sponsored by Representative Barney Frank (D-Mass.), a new Consumer Financial Protection Agency would assume functions now performed by a host of other federal agencies, such as the Federal Trade Commission, the Federal Deposit Insurance Corporation and the Comptroller of the Currency.  Senator Chris Dodd (D-Conn.) has included similar provisions in a more comprehensive bill overhauling federal regulation of banks and other financial institutions, say Neese and Lowe.  

  • The consumer agency would be directed by a four-member board appointed by the president and confirmed by the Senate.
  • Each member would serve a five-year staggered term and could only be removed for cause.
  • Thus, the agency would be independent, similar to the Interstate Commerce Commission, and only indirectly accountable to the president.

Many believe excessive consumer lending on terms unfavorable to debtors exacerbated the 2008 financial crisis and current recession.  Thus, Congress is seeking to tighten regulations by consolidating authority into one agency charged with preventing "unfair, deceptive or abusive acts or practices" in the consumer financial services industry.  However, increased federal control over consumer credit could have the unintended consequence of reducing the access of small businesses to important sources of financing, say Neese and Lowe.

The proposed Consumer Financial Protection Agency would make it more difficult for lenders to offer services and products that are important to small businesses.  At a time when the economy is still struggling to recover, the last thing Congress ought to consider is an additional layer of regulation that could discourage new job creation, say Neese and Lowe.

Source: Terry Neese and Bethany Lowe, "New Federal Regulations Threaten Small Business Access to Credit," National Center for Policy Analysis, Brief Analysis No. 681, December 8, 2009.

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