New Financial Regulator Would Impact You

By Robert Freedman, Senior Editor, REALTOR® Magazine

But not in the way you might think.

A new financial regulator is in the works but it's one of those developments that's easily lost in the news while other federal initiatives command the headlines.

The Consumer Financial Protection Agency (CFPA), which passed the House Financial Services Committee just a few weeks ago, would represent a sweeping change in the way financial services companies are regulated. Right now, our alphabet soup of federal banking regulators-OCC, FDIC, NCUA, and so on-have two missions: 1) to oversee the safety and soundness of financial services companies, and 2) to protect consumers.

The logic behind CFPA is to split off the consumer-protection side of the regulators' portfolio so they can focus on bank safety and soundness. The new agency would focus on consumer protection.

What's key for real estate professionals is that CFPA will focus only on financial services companies. That seems obvious, but it wasn't always this way. As the language was originally drafted, any number of professional services that handle money in some way would have fallen under the definition of financial services. Thus, real estate professionals, who handle earnest-money deposits among other things, could have been subject to regulation under CFPA.

Rep. Barney Frank (D-Mass.), chairman, House Financial Services Committee

The fact that the House Financial Services Committee makes clear in its bill that real estate brokers and sales associates aren't regulated under CFPA is an advocacy victory for REALTORS®, who, through NAR, let lawmakers know that the original draft would lead to unforseen consequences if it wasn't changed. It was.

You should be aware that CFPA could still touch the real estate transaction in several ways, though. Assuming the bill passes in something close to its current form, the Real Estate Settlement Preocedures Act (RESPA), which today is overseen by HUD, would be placed under CFPA.

Aspects of the Home Mortgage Disclosure Act (HMDA), which real estate professionals know mostly for its role in providing data on mortgage lending, would also fall to CFPA. But CRA-the Community Reinvestment Act-would not. CRA is the law requiring banks to make loans in all the areas from which they collect deposits. In other words, they can't collect deposits in a low-income area but not make loans there.

What's next for the CFPA bill? It must still be passed by the House and it has yet to be introduced in the Senate, but in the latter chamber, Sen. Christopher Dodd (D-Conn.), the chair of the Senate Banking Committee, has said he plans to introduce the bill soon. There's momentum on the side of CFPA getting passed.

I sat down with NAR financial services analyst Tony Hutchinson last week to learn exactly how CFPA could touch the real estate transaction. You can hear what he had to say in the brief video interview above.