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By Jeff Bater
Feb. 9 — The final budget proposal of President Barack Obama vows to maintain the administration's vigil against efforts to compromise the mission of the Consumer Financial Protection Bureau (CFPB).
The fiscal 2017 budget proposal, released Feb. 9, would significantly increase funding of the Securities and Exchange Commission and the Commodity Futures Trading Commission, and the administration said it will continue “to oppose efforts to restrict the funding independence of the other financial regulators, including the Consumer Financial Protection Bureau, and will fight other attempts to roll back Wall Street reform.”
Republicans in Congress have been persistent in their attempts to cancel the ability of the CFPB to fund its operations from the Federal Reserve’s yearly remittances to the Treasury Department and, instead, to bring bureau funding under the annual appropriations process .
The budget blueprint also proposes to fund a program that would offer small-dollar loans through community development financial institutions, which are small lenders certified by the Treasury Department to provide financial services to underserved markets. In addition, the budget calls for a new fee on large, highly leveraged financial institutions to reduce the incentive for those companies with assets exceeding $50 billion to use excess leverage.
The president's proposal would raise $111 billion over 10 years by imposing a seven-basis-point fee on the liabilities of roughly 100 financial firms with assets exceeding $50 billion.
“By attaching a direct cost to leverage for large firms, this fee will reduce the incentive for large financial institutions to use excess leverage, complementing other administration policies aimed at preventing future financial crises and making the economy more resilient,” the plan said.
Jaret Seiberg, a Guggenheim Securities analyst, acknowledged he thinks there is “zero chance” Congress will enact the budget blueprint, but said the plan is important because it offers a preview of what Obama may or may not try to do via executive action during his final 11 months in office. Seiberg said the proposed bank levy not only would raise revenue but could level the playing field with regional banks.
“Normally we would not discuss a tax that this Congress will not advance,” he wrote in a market commentary. “We ignore our policy because this is something that Sen. Bernie Sanders and Secretary Hillary Clinton are advocating. As a result, this will be in the next budget in 2017 if a Democrat wins the White House.”
The budget plan creates a fund that calls for $100 million for the U.S. Treasury Department to encourage the development of financial products that would help low- to moderate-income workers build savings. In addition, the budget proposes $10 million for a program to offer small-dollar loans through the community development financial institutions (CDFI) program. CDFIs are small lenders certified by the Treasury Department to provide financial services to underserved markets.
Sen. Sherrod Brown (D-Ohio), the ranking member of the Senate Banking Committee, had urged Obama in a letter in January to request funding for those initiatives. The programs were authorized under the Dodd-Frank Act.
“When one in four Americans can’t access safe, affordable financial products, we must find alternative solutions so that families don’t have to depend on predatory payday loans,” Brown said in a news release Feb. 9. “Expanding access to affordable credit, as well as exploring ways to build savings, are steps we need to improve a financial system that is not working for many Americans.”
Responding to the administration's new proposal to fund small-dollar loans through the CDFIs, the Consumer Bankers Association (CBA) said Obama is right to recognize that low- and moderate-income American families often need access to short-term liquidity. The industry group then added, “As we have said many times, however, here is the problem: Our own government, namely the [Office of the Comptroller of the Currency] and [Federal Deposit Insurance Corporation], essentially eliminated a very popular bank product which helped many of these working families make ends meet,” CBA President and CEO Richard Hunt said in a statement Feb. 9. “The result has been extremely costly to consumers who now pay much higher interest rates through the payday and other nonbank industries.”
In 2013, the OCC and FDIC issued guidance on deposit advance products that alerted lenders of risks of those small-dollar, short-term loans . At the time, the CBA warned the guidelines could drive cash-strapped consumers into underregulated or unregulated lending circles, such as payday lenders.
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The budget proposal is viewable at http://src.bna.com/cxQ.
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