The American Institute of CPAs testified before Congress in favor of exempting CPAs from oversight by the proposed Consumer Financial Protection Agency, arguing that CPAs are already highly regulated.

At a hearing before the House Committee on Small Business, incoming AICPA chairman Bob Harris told the committee that small businesses such as his CPA firm would be harmed if they were subject to regulation by the agency. The Obama administration has proposed the creation of the new agency to help protect consumers from abusive mortgages and credit card terms, and other deceptive financial practices.

“The AICPA supports the goal of enhanced financial consumer protection, but we believe it is critical to consider the plan’s effect on small business to ensure that it does not stifle the innovation, creativity and inventiveness of the American entrepreneur that has driven our economic engine,” said Harris, who is managing partner of Harris, Cotherman, Jones, Price & Associates, an 11-CPA firm in Vero Beach, Fla.

Harris noted that the CPA profession is already heavily regulated. “Not exempting CPAs providing customary and usual services to their clients from the scope of this bill will drain necessary resources from each agency and increase costs to consumers without any corresponding benefit,” he said.

Harris argued that the proposed legislation creating the agency, the Consumer Financial Protection Act, was overly broad.

“The definition of ‘financial activity’ in the bill is so broad as to include many services that CPAs routinely provide to their clients in accordance with a very strict regulatory and oversight regime,” he said. “The bill would result in redundant regulation of CPAs and CPA firms that are already subject to appropriate and significant oversight by the IRS, Treasury, state boards of accountancy, and professional and ethical standards for the AICPA’s members. CPAs should not be exempt from CFPA regulation when acting outside of the provision of customary and usual services to their clients, and we support additional oversight of financial products, such as refund anticipation loans.”

Committee Chairwoman Nydia Velázquez pointed out that other entities such as community banks and credit unions could see their business models profoundly affected by many of the proposed changes in the administration’s proposed financial regulatory legislation. “Small firms in the financial sector often face higher compliance costs than their larger competitors,” she said. “Several proposals would result in small lenders answering to a new regulatory entity.”

Testifying at a separate congressional hearing before the House Financial Services Committee, however, Treasury Secretary Timothy Geithner defended the need to create the new agency. “Innovation without regulation leads to a race to the bottom based on exploiting consumer confusion,” he said. “Without rules, the firm that makes its product appear more attractive by hiding the real cost to the consumer wins.  Perhaps a firm does not want to take that route, but competition forces it to. Without a strong framework of regulation, banks and other providers compete to take advantage of consumer confusion, rather than to better serve consumer preferences.”

The legislation is likely to be heavily modified as various legislators weigh in with proposals. Velazquez noted Wednesday that the administration has removed requirements that financial institutions offer specific products, such as 30-year fixed mortgages and low-interest, low-fee credit cards.