Bill Statistics
The Middle Class Position
How They Voted
Grades
The House receives a grade of C for its support of the middle class on this piece of legislation.
222 Representatives voted for the middle-class position; 202 voted against.
See how each member voted on this bill:
Wall Street Accountability and Consumer Protection Act
- Consumers
- Corporate Accountability
- Corporate bankruptcy
- Corporate taxes
- Credit cards
- Debt & Bankruptcy
- Deceptive advertising and marketing
- Executive compensation
- Financial literacy
- Government Accountability
- Housing
- Mortgage lending
- Payday loans
- Personal bankruptcy
- Refund Anticipation Loans
- Shareholder rights
- Student loans
- Tax Fairness
12.02.2009 [House]
Rep. Barney Frank [D-MA]
The Wall Street Accountability and Consumer Protection Act strengthens and expands regulation of the financial services industry. The bill is designed to shield the financial system from a crisis of liquidity, borrowing, and lending similar to the one it experienced in 2008 and to protect consumers from abusive and predatory lending.
The legislation establishes a Consumer Financial Protection Agency (CFPA) to oversee and regulate a wide range of consumer financial products and services, from mortgages and credit cards to overdraft fees and check cashing. The Agency will monitor consumer risk and take action, including preventive measures, to eliminate unfair, deceptive, and abusive behavior. The CFPA will also promulgate regulations to ensure that financial service providers act in the interest of consumers. Such regulations can include a ban on certain products or services. Although the Federal Reserve currently possesses some consumer protection authority, the CFPA is the first agency devoted exclusively to regulating consumer financial products and services. However, a regulator will determine on a case-by-case basis if stronger state consumer protection laws interfere significantly with a bank’s operations and so should be overridden, or “preempted,” by weaker federal ones. Auto dealers, smaller banks, and credit unions are exempt from the Agency’s regulations.
The Wall Street Accountability and Consumer Protection Act also creates a Financial Services Oversight Council to scrutinize the stability of the financial sector, including firms and their activities. The Council, composed of the heads of an array of federal financial regulatory agencies, will monitor the financial system for threats and, when necessary, apply stricter “prudential standards,” which are regulatory mechanisms designed to increase the stability of a financial firm, such as capital, leverage, and liquidity requirements. If grave threats to financial stability materialize, the Council is empowered to take more forceful measures, including mandating sales or divestiture and restricting the use of a financial product. Further, in a period of severe economic distress, the federal government can create a program to guarantee loans in order to prevent destabilization of the financial and economic system. Participants in this guarantee program would be assessed a fee for its use. The legislation authorizes the Federal Reserve to make discounted loans available to firms in “unusual and exigent circumstances,” but the loans must be made widely available rather than directed at particular institutions. The Federal Reserve plays a prominent role in the regulatory activities of the Financial Services Oversight Council and is subject to increased oversight by the Government Accountability Office.
The legislation tasks the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits and manages bank failures, with dismantling large financial companies whose failure would have serious adverse consequences for financial stability and the economy. In taking apart such a firm, the FDIC is authorized to make loans, purchase and sell assets, and assume obligations. This so-classed dissolution authority would be funded by assessments on the largest financial companies and would total no more than $150 billion.
The Wall Street Accountability and Consumer Protection Act strengthens protections for investors by enhancing the enforcement power of the Securities and Exchange Commission; requires lenders to retain a portion of the risk they generate; regulates the derivatives marketplace, whose lack of transparency contributed to the collapse of the giant insurer AIG, by forcing some transactions onto exchanges where they can be monitored more effectively; improves regulation of credit rating bodies by enhancing SEC oversight and decreasing federal statutes’ reliance on them; and requires that hedge funds, private equity firms, and other private pools of capital register with the SEC. A new Federal Insurance Office will monitor the insurance industry. Small public companies are exempted from the increased audit requirements established by the 2002 Sarbanes-Oxley law.
Finally, the Wall Street Accountability and Consumer Protection Act includes two measures that the House of Representatives passed previously. The Mortgage Reform and Anti-Predatory Lending Act protects mortgage borrowers from certain abusive and predatory lending practices and the Corporate and Financial Institution Compensation Fairness Act regulates executive compensation and improves corporate governance.
Middle Class Supports. The economic and financial crisis has demonstrated that the current financial regulatory system permits banks, mortgage brokers and servicers, and other firms to enrich themselves at the expense of ordinary Americans. Abusive and fraudulent mortgages sold to unsuspecting homeowners fueled the housing crisis while credit card companies used deceptive billing practices to mire cardholders in debt. The federal government leaped into action to assist the financial services industry when firms like AIG, Morgan Stanley, and Citigroup were at risk. The $700 billion TARP program and trillions of dollars more in cheap loans and guarantees have nurtured the financial services sector back to health, profits, and gigantic compensation packages. Meanwhile, middle-class Americans continue to face foreclosure and abusive lending and credit card practices in addition to extended bouts of unemployment.
The Wall Street Reform and Consumer Protection Act’s creation of a Consumer Financial Protection Agency is a critical innovation to protect ordinary Americans from deceptive and abusive lending practices. While consumers are currently guarded from faulty products like toasters, no single agency is tasked with overseeing the financial products and services – from credit cards to mortgages and student loans – that Americans rely on every day to earn a middle-class standard of living. The CFPA will be empowered to root out products and services that are harmful to aspiring middle-class and middle-class Americans. It will promote equal access to safe credit products and root out harmful ones like certain subprime mortgages, abusive credit card practices, and usurious payday loans. The Agency is critical to making the financial services sector work for ordinary Americans. The Mortgage Reform and Anti-Predatory Lending Act, which is included in the bill, also takes important steps to combat and end the abusive lending practices at the root of the financial crisis.
The legislation’s increased regulation of executive compensation, improved protections for investors, and expanded oversight of derivatives all address factors – compensation structures that encouraged excessive risk taking, fraudulent investment practices like Bernard Madoff’s Ponzi scheme, and opaque derivatives contracts – that contributed to the financial crisis. These steps will help ensure that similar practices do not precipitate another crisis.
The Financial Services Oversight Council, the regulatory powers granted to the Council, and the dissolution authority included in the legislation make the development of a financial threat into an agent of financial and economic destabilization less likely. By regularizing a process for oversight of financial markets and creating a mechanism for regulators to impose capital, leverage, and other standards on at-risk firms, the legislation significantly enhances the federal government’s capacity to stem an outbreak of instability before it begins. Most importantly for middle-class Americans, this process and the dissolution authority created by the legislation rely on assessments of the largest financial firms for funding. Thus, if future bailouts become necessary, they are much less likely to use taxpayer dollars.
“[T]he U.S. House of Representatives has taken an important step toward restoring our country's financial stability by voting to pass the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173). The bill would provide consumers with significant protections from the industry practices that dismantled our economy and those of countries around the world…Meaningful regulatory reform requires a strong, independent CFPA that can set commonsense standards in the financial services arena. Any reform must also restore states' ability to identify and stamp out problems locally before they become national.”
–Michael Calhoun, President, Center for Responsible Lending (December 11, 2009)
“[T]he House of Representatives took an important step forward in protecting the wallets of all Americans from unscrupulous and abusive lending and banking practices. The Chamber of Commerce, the big banks, and the most unscrupulous bottom feeding lenders spent hundreds of millions of dollars to try to defeat any progress, but reform is moving ahead despite them. We need to do more, but the passage of these reforms helps create a path back to jobs and economic growth...”
–Heather Booth, Director, Americans for Financial Reform (December 11, 2009)
Though the Wall Street Reform and Consumer Protection Act includes provisions, particularly the Consumer Financial Protection Agency, that substantially benefit consumers by reducing the abuses of the financial services industry, the bill was significantly watered down from its original form and, as Americans for Financial Form points out, several provisions should be revised by the Senate. Originally, the legislation would have empowered the CFPA to identify “vanilla” mortgages, credit cards, and other financial products that firms would have to offer their customers. These standardized products would be those that the CFPA deemed to be best suited to the needs of consumers, not to banks’ bottom lines. The provision was not included in the final legislation. A provision allowing the CFPA’s rules to preempt stronger state regulations is particularly worrisome. Though decisions about preemption will be made on a case-by-case basis, we fear that financial institutions will be able to significantly influence the process, leaving consumers at risk from weaker national laws not adapted to local conditions. Not permitting the CFPA to oversee the Community Reinvestment Act (CRA), which ensures equitable lending to underserved communities, is a further defect: the CFPA’s mission to ensure equitable access to loan products makes it the natural home for CRA oversight. Additionally, regulations regarding derivatives and oversight of credit rating agencies and private pools of capital are not strict enough and will allow many financial practices to remain unregulated. Finally, an amendment to the bill would have allowed bankruptcy judges to reduce the mortgage principal of primary residences, a practice that is currently prohibited. This would have significantly improved the legislation by helping more than a million families save their homes from foreclosure.
The Wall Street Reform and Consumer Protection Act reduces the risk of future financial instability and makes taxpayer-funded bailouts of large financial institutions less likely. However, the bill codifies into law a financial system that is always on the brink of disaster. Rather than imposing strict rules to reduce the size and limit the function of financial institutions, the legislation relies on federal regulators to intervene only after they detect threats to stability.