Tennessee’s Robert Cooper Jr., along with 24 other state attorneys general, signed a letter a few days ago to U.S. congressional leaders supporting the creation of a new Consumer Financial Protection Agency.

It’s a proposal that would put a new cop on the beat with a mission similar to the U.S. Consumer Product Safety Commission. That’s the government agency that regulates the sale and manufacture of thousands of consumer products, everything from power tools to baby cribs.

With the CFPA, the regulated products would include home loans and credit cards. The proposed agency would have the power to write new rules for certain products, monitor the marketplace and take enforcement action.

Out of the shadows

The letter to ranking members of a pair of congressional committees that would be in charge of writing the CFPA legislation reflects what’s at stake in the debate.

The issue seemed to become overshadowed during the past few weeks by the national discussion over health care reform. But in Memphis and elsewhere, community bankers, financial industry officials, consumer advocates and political figures are starting to weigh in on this latest in a string of groundbreaking financial reforms.

Michael Fulton, the special legislative assistant for financial services for U.S. Rep. Steve Cohen, D-Memphis, is scheduled to address a Thursday meeting of the local Responsible Lending Collaborative. The collaborative, which will meet at the Urban Child Institute at 600 Jefferson Ave., was founded by local advocacy group The RISE Foundation (Responsibility, Initiative, Solutions, Empowerment).

Fulton will give a phone update on the CFPA’s status among lawmakers. The concept remains one of many ideas being considered to reshape the country’s financial landscape.

“What I wanted Michael to address was where it is, the chances of getting it out of committee, what kind of amendments are likely to come, and then assess what the chances of its passage might be,” said Corky Neale, director of research and innovation for RISE. “I just wanted to get an update and get people a little engaged in that conversation. Because fundamentally, this is really an important piece that nobody is talking about right now. It’s gotten buried by the health care stuff, which is also important.”

Doing business as

SunTrust Banks Inc., one of the largest regional banking players with a presence in the Memphis market, warned shareholders in a regulatory filing Aug. 10 about the possible creation of the new financial watchdog. The bank argued it would overburden the banking industry with broad new regulations and increase the costs of doing business.

SunTrust is one of hundreds of banks given emergency capital from the federal government last year to help withstand the economy’s slide. Atlanta-based SunTrust got $4.9 billion through the government’s Troubled Asset Relief Program.

Criticism of the proposed financial industry reform comes at a time banks are starting to stanch the bleeding on their balance sheets.

“On July 15, 2009, the U.S. Treasury published a paper that describes its vision for financial regulatory reform,” SunTrust said in a quarterly report the bank released in recent days. “Several proposed changes to the regulatory system could adversely affect our business and the economies of the markets in which we operate.

“For example, one proposal set forth is the establishment of a consumer protection agency which would … have broad rule-writing powers to administer and carry out its purpose and objectives, have the power to exempt certain persons or consumer financial products from its purview, have the power to examine or require reports from certain persons to ensure compliance with such agency’s mandates and have primary enforcement action over its mandates.

“Such a limitation on the financial products we may offer may impact our ability to meet all of our clients’ needs and lead to clients seeking financial solutions and products through … channels outside the scope of this agency. … Consequently, the increased expense of complying with an additional regulatory agency and the inability to retain qualified employees may adversely affect profits.”

Ways of looking at it

The legislation is still forming. What effect it will have among banks, credit card issuers, auto lenders and even payday loan shops remains to be seen.

Will Chase, president and CEO of Triumph Bank in Memphis, faulted the proposed agency’s mission of streamlining financial offerings. The CFPA’s one-size-fits-all approach, while meant to stifle risky products, is something Chase sees as unpalatable to fellow community bankers.

Will Chase

“One regulator of everything, to me, makes no sense,” he said.

He likened the unified oversight to an attempt to run the Wendy’s international fast food chain – the kind of business that practices uniformity at the behest of a corporation – the same way the local Huey’s restaurant business is run.

Neale said he believes the potential new regulator could benefit small banks by allowing them to serve as models under a new banking framework.

“It’s very interesting we’re getting a lot of pushback on this from community bankers,” Neale said. “I don’t quite understand it, because they could be the models. They could really benefit competitively from having this, because it wasn’t these guys who really fostered a lot of this. It was the big Wall Street banks that created a lot of the problems.”