Thursday, May 21, 2009

Shapiro to question any shifting of powers away from SEC

The chairman of the Securities and Exchange Commission yesterday pushed back against the possibility that her agency might lose regulatory control over mutual funds to a new federal commission on consumer financial products.

As reports emerge that the Obama administration is discussing the creation of such a commission, SEC Chairman Mary L. Schapiro argued that her agency has the right experience to continue regulating investor products such as mutual funds. "It's not a discrete thing to get moved away without damaging the fabric of the entire investment protection regime that is built up over many years here," she said.

Schapiro's remarks are likely to presage an intense debate over the future of financial regulation. A major business lobby yesterday expressed skepticism about adding a layer of regulation. Meanwhile, prominent consumer groups, which have long argued that regulatory agencies have not adequately protected consumers from risky mortgages and tricky credit cards, welcomed the idea of a new commission.

"This is by far the best idea that has surfaced in the last decade on how to protect financial consumers and the economy from many of the problems we've seen," said Travis Plunkett, director of legislative and regulatory affairs for the Consumer Federation of America.

Administration officials have been weighing the creation of a commission that would consolidate oversight of a range of financial products marketed to consumers, possibly including credit cards, mortgages and mutual funds. Regulation of consumer financial products is currently distributed among a patchwork of federal agencies.

Plunkett said consumer protection has long been an afterthought for regulators, who are primarily interested in the financial profitability of firms they oversee. "If you rein in risky lending, they're less profitable. If they're less profitable, their balance sheets are less strong," he said.

The U.S. Chamber of Commerce, the nation's largest business lobby, supports plugging gaps in consumer protections, but has expressed concern about any proposal that would siphon consumer protections into a separate agency. Along with other groups, including the Mutual Fund Directors Forum, the chamber is wary of removing the SEC's authority over mutual funds.

"What you want is regulators who really know the businesses they're regulating. Defusing expertise among regulators is not a good idea," said David Hirschmann, president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.

Harvard University law professor Elizabeth Warren, chairwoman of the Congressional Oversight Panel on economic recovery, has long advocated for the creation of a consumer financial products commission. Her proposal is serving as a launching point for much of the discussion.

In an interview yesterday, she said the central problem is that consumers are unable to make informed financial decisions because the most relevant information often is concealed or obscured.

"I could hand you five credit cards, and the odds are good that neither one of us could figure out which one would be best for you," she said. "What the financial products safety commission is about, is just making these products easy to read, so that you can look at credit card A, B and C and understand what the differences are."

She said the sale of financial products with problematic terms was a major cause of the current recession. "This is an issue about the economic stability of our country," she said. "Remember that the financial crisis started with selling one lousy mortgage at a time, household by household."

Warren said that creating a new agency also would be a way to foster a new approach to regulation. She said it made more sense for the government to organize regulation around products rather than companies.

"Our regulations need to learn and change as the market innovates," Warren said. "Congress can outlaw practice X and practice Y, but to get real change and nuanced change takes a regulatory agency with expertise and flexibility."

Schapiro, the SEC chairman, said that the discussion over starting a consumer protection agency did not amount to a "concrete proposal" and that she hopes she and others will "be refining it."

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