FedFin has begun our in-depth analysis of the Administration reform plan, building on our initial overview. Here, we evaluate the new Consumer Financial Protection Agency (CFPA), perhaps the hottest button in the plan for the banking industry. FedFin here assesses how the CFPA would work if enacted, not whether it should be enacted. We’ll turn to a policy assessment of the proposal at a future date, but think it essential first to advise clients on the substantive impact – like it or not – of a proposal that could advance very quickly in the House. This report assesses aspects of the CFPA on which industry comment has already focused – e.g., the requirement to offer simple products whenever more complex ones are marketed – but goes into them in detail to assess the degree to which CFPA would simply ban products. We think this likely if the agency is given the proposed powers, significantly changing retail-finance in ways that would sharply favor traditional origination and securitization channels. We also note other important provisions with strategic impact. Among these is the proposal to strip the FRB of its authority to review Community Reinvestment Act (CRA) performance in connection with merger-and-acquisition decisions. The CFPA would almost surely take a far tougher stand on CRA than the FRB, which has almost never raised CRA obstacles to even the most controversial transactions. Tougher CRA standards would be a challenge throughout the banking industry, but prove most difficult for new BHCs (e.g., Goldman Sachs). This report also addresses the Administration’s plan to end preemption, a huge hit to federally-chartered institutions that would sharply increase legal and reputational risk. Given strong Congressional support for limited, if not eliminated, federal preemption, we expect to see much of this in Congress’ final legislation even if the CFPA per se is dropped (which we doubt). A separate report will assess the Administration’s proposal in conjunction with the CFPA to revise and increase broker-dealer investor-protection responsibilities.
The full text of this report is available to subscription clients.