October 20, 2009

Members, Financial Services Committee
U.S. House of Representatives
Washington, DC 20510

Dear Representative:

As the Financial Services Committee prepares to continue its markup of H.R. 3126, we write to express our support for a strong, non-preemptive Consumer Financial Protection Agency (CFPA). In this regard, we call your attention to two issues that are expected to come up in today's markup.

First, on maintaining the States' vital role, overly broad preemption in recent years contributed to the current financial crisis by removing state protections that deterred unsustainable lending.

  • Support Watt-Moore preemption amendment. We support the amendment offered by Mr. Watt and Mr. Moore. We continue to recommend the more limited preemption offered in the manager's amendment, as the Watt-Moore amendment would still permit excessive preemption. However, Watt-Moore is necessary in order to resolve this issue and at the same time preserve some role for states in protecting consumers. There may be remaining technical issues regarding the preemption provisions that need to be addressed as the bill proceeds.
  • Oppose Bean preemption amendment. We understand that Representative Bean or others may offer an alternative preemption amendment or a second-degree amendment to the Watt-Moore amendment. These amendments would provide for sweeping preemption, and would endorse the status quo related to the OCC and OTS. We strongly oppose these amendments.
  • Oppose Adler-Bean state enforcement amendment. This amendment would impose additional delays and hurdles on State enforcement efforts generally, and particularly in connection with illegal activity by federally chartered institutions. We believe that the manager's amendment does a better job of striking a balance between creating an opportunity for federal enforcement, and leaving room for the States to protect their own citizens.

Second, it is important that the CFPA not be weakened by excessive carve-outs, as such carve-outs permit opportunistic abuses to spread via unregulated segments of the market. In particular, we have strong concerns with over-broad carve-outs for auto dealers, credit rating agencies, credit-related insurance and attorneys. The former two markets are particularly in need of standard-setting to address long-standing abuses, particularly relating to communities of color; the credit insurance carve-out likewise could provide inappropriate cover for abuses. Accordingly, we urge the following:

  • Support the Frank amendment on the merchant exclusion. We support this amendment, but we would urge a tightening of the language to ensure coverage of highly abusive "buy here/pay here" auto lenders and direct student loans.
  • Oppose the Campbell amendment carving out auto dealers. Approximately $365 billion of the auto finance market is originated at the auto dealers, and there are widespread abuses related to financing, such as "bait-and-switch" financing, and dealer mark-ups that result in consumers paying more for their car loans than they qualify for, among others.
  • Support the Frank amendment to restore consumer reporting agencies and functions to the Agency's jurisdiction. The credit collection and reporting functions of credit reporting agencies are central to the financial lives of Americans, but consumer reports are riddled with inaccuracies and are difficult to correct.
  • Support the Waters amendment limiting the carve-out for attorneys to avoid abuse. The amendment would ensure that the carve-out applies only when the attorneys act as attorneys, not as participants in scams such as those related to debt settlement, loan modifications or foreclosure prevention.
  • Oppose the Moore amendment carving out credit-related insurance. Credit-related insurance has long been associated with predatory lending as a tool for abuse, and its sale cannot be separated from the credit transactions themselves.
  • Oppose the Jones amendment carving out credit unions. Unfortunately, some credit unions are involved in the same kinds of abusive lending practices that non- banks are, such as payday lending that keeps families on a debt treadmill. One of the fundamental purposes of the CFPA is to ensure there is a level playing field for fair competition: all providers of the same services and products should have to play by the same rules.

We look forward to working you as the bill moves through Committee and to the Floor.


Michael Calhoun, President
Center for Responsible Lending