Consumer watchdog nears U.S. House panel approval
A U.S. congressional committee is likely on Wednesday to endorse the creation of a financial watchdog agency to protect consumers, with large banks likely to feel its bite worst.
The proposed Consumer Financial Protection Agency (CFPA), a linchpin of the Obama administration's plan to tighten regulation after the worst financial crisis in decades, has been under attack from bank lobbyists and Republicans.
Over months of debate, the agency's scope and scale have been cut back through the bill-drafting process in the U.S. House of Representatives Financial Services Committee.
The panel is likely to approve a bill that would exempt a long list of businesses from CFPA jurisdiction but expose large banks to tougher new oversight.
The new agency would have purview over credit cards, mortgages, bank fees and other financial products. It would strip existing agencies, including the Federal Reserve, of consumer protection duties, centralizing them.
A full House vote was not expected until November. The outlook for the proposed agency was unclear in the Senate, where lawmakers are moving more slowly on financial reform.
The House committee vote will be only the start of the fight, said Jaret Seiberg, policy analyst at investment firm Concept Capital. The CFPA piece of financial reform is likely to change greatly in the Senate.
Democratic supporters of the CFPA say it is needed to replace agencies that have failed to protect consumers through the crisis and in the years before it.
Critics call it a new layer of government bureaucracy that could stifle financial innovation.
Regardless of what the final bill looks like, we think the way that the bill is expected to emerge ... bolster(s) our thesis that we are entering an era of one set of rules for large banks as compared to smaller banks, said Brian Gardner, policy analyst at the financial firm Keefe, Bruyette & Woods.
SMALL BANKS GET A BREAK
A turning point in the bill's journey through the House committee was the deletion last month of an administration provision that would have required banks to offer plain vanilla financial products, such as simple, 30-year fixed-rate mortgages.
Opponents considered that too much government meddling in the private sector's business decisions.
In addition to dropping the plain vanilla provision, committee Democrats exempted many businesses from CFPA oversight, including an amendment exempting banks with less than $10 billion in assets.
That won the support of the powerful community bank sector, which has fared better on Capitol Hill than the megabanks that were bailed out by taxpayers in the crisis.
Another key issue has been preemption, or whether the bill would allow state governments to write and enforce consumer protection laws that are harder-hitting than the CFPA's.
Republicans generally support federal law preemption of state law, as do lobbyists for banks that would rather deal with one regulator in Washington instead of 50 nationwide.
But the Obama administration and Democrats say state authorities have done a better job of protecting consumers and should be given more room to operate freely.
An amendment intended to bridge the disagreement was expected to win approval.
Moderate, pro-business Democrats retreated from the preemption fight, dropping an amendment that would have given federal authorities the upper hand.
That amendment could come back later, however, under the deal worked out between the moderates and House Financial Services Committee Chairman Barney Frank, a Democrat.
Frank said on Tuesday that he would oppose a Republican amendment to exempt auto dealers from the agency's oversight.
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