The head of the American Bankers Association (ABA) this morning acknowledged “improvements” to the newest version of legislation to create a Consumer Financial Protection Agency (CFPA), but continued to express concerns about the effects such a sweeping measure could have on banks and credit unions.

Testifying before the House Financial Services Committee, ABA President and CEO Edward Yingling said the ABA supports broad financial regulatory reform that contains, among other things, creation of a systemic risk oversight agency, creation of a strong resolution mechanism for addressing the too-big-to-fail concept, filling of regulatory gaps, and creating additional authority for the Federal Reserve to regulate the payments system. Yingling also voiced support for enhanced consumer protection, noting that the debate over the proposed CFPA has helped to more clearly identify problem areas.

The measure, part of President Barack Obama’s financial reform package, calls for an agency with broad authority to regulate virtually all consumer financial products, from home mortgages to credit cards, and which would have the power to levy fees and prosecute lenders.

“The two areas of reform that have been identified in this debate are the need for a more direct focus by federal regulators on consumer issues and the need for more enforcement on non-banks,” Yingling said in a press release.

However, Yingling also said that the CFPA plan put forth by the administration goes well beyond addressing these two weaknesses, bestows vast and unprecedented powers on the new agency and unnecessarily imposes new burdens on banks and credit unions.

John Sorensen, president and CEO of the Iowa Bankers Association, echoed those concerns.

“We’re very disappointed that (the legislation) would still create this new agency,” he said. “The real concern is that you’re going to have one regulator coming in the door to review for safety and soundness issues, and another coming in the door regulating for consumer protection. Those have always been integrated through one regulator that has had both those responsibilities.”

Sorensen said Iowa bankers are also concerned that the cost of funding the CFPA “would fall on the backs of federally insured institutions to fund this regulator, on top of what we’re already seeing.”

The revised bill eliminated a provision that would have required financial institutions to offer government-mandated, or so-called “plain vanilla” products to its customers, a move Sorensen applauded.

“Our concern is that it would turn banking products into commodities, and the impact that would have on local banks to tailor products to their customers,” he said. “And there was also the concern about the liability if you go outside that plain vanilla definition.”