House Financial Services Chairman Barney Frank (D-Mass.) will “soon” release changes to some of the most controversial provisions of the Obama Administration’s proposed Consumer Financial Product Agency, according to an internal memo sent by Frank to committee members. 

Frank said he will exclude many nonfinancial businesses from regulation by the proposed consumer agency (see bottom of article), remove a provision that firms offer plain-vanilla financial products and eliminate a provision requiring firms to assess whether consumers comprehend the financial products they are offered.

“Instead, CFPA will be mandated to improve the current disclosure regime with an emphasis on clarity, simplicity, conciseness, and reduction of regulatory burden,” according to Frank’s memo. 

An independent Consumer Financial Product Agency has drawn strong criticism from industry lobbyists and conservatives who say the Administration’s proposal would grant the new regulator too much authority.

Frank’s memo said he would structure the agency by including a single director who will be advised by a Consumer Financial Protection Oversight Board, including federal banking regulators and other government agencies.

Frank is proposing non-bank financial institutions register with the new agency if they provide consumer financial products and services.

“Nonbanks will be subject to a level of supervision and scrutiny that is no less burdensome or comprehensive than that governing traditional banks and thrifts and that will fully reflect the risks posed by these previously unregulated entities,” according to Frank’s memo.

Frank issued his memo to committee Democrats only a day before Treasury Secretary Tim Geithner will appear before his committee to push the very proposal Frank said he will change. 

“Effective protection requires consolidated authority to both write rules and conduct oversight and enforcement,” said Geithner, according to his prepared remarks obtained by committee sources. “Combining these authorities will ensure that the agency has a wide range of tools to address any problem within its domain, and can choose those that are most effective and impose the least burden.”

• Scroll down to read Geithner's prepared remarks.

Geithner’s prepared remarks provide a familiar pitch to Congress to pass a financial regulatory overhaul as soon as possible.

“Time is the enemy of reform. As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency.”

While Geithner’s description of the administration’s plan and his calls for quick action are consistent, the Treasury Secretary will take a more critical tone with Wall Street Wednesday. 

“We cannot permit weak regulation of government-sponsored enterprises like Fannie Mae and Freddie Mac that accumulate trillions of dollars of exposure that is implicitly backed by the taxpayer. We cannot again permit our largest investment banks or other firms to operate without real consolidated supervision, yet obtain government assistance when they collapse,” according to Geithner’s testimony.  “We will impose tough rules on our largest, most leveraged, and most interconnected firms.”

The Obama Administration already has.  The specifics are up Congress. 

Who would be exempt from regulation by the proposed consumer agency:

• Accountants and other businesses that perform tax preparation services
• Real estate brokers and agents
• Lawyers
• Auto dealers
• Telecom, cable and other communications providers;
• Consumer reporting agencies
• Providers of IRAs, 401(k) plans, 529 plans and pension plans
• Service providers that provide strictly ministerial and support services to financial institutions.

Proposed composition of the agency’s board:

The federal banking agencies, the National Credit Union Administration, Federal Trade Commission, the US Department of Housing and Urban Development, and the Chairman of the State Liaison Committee of the Federal Financial Institutions Examination Council would be represented on the oversight board, according to the memo.

Geithner's Testimony to the House Financial Services Committee