Washington Post: House Panel Passes New Consumer Protection Bill

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A key congressional panel voted Thursday to create a federal agency aimed at protecting Americans from the predatory lending practices and other abuses that hastened the financial crisis.

By a vote of 39 to 29, mostly along party lines, the House Financial Services Committee approved a measure that would create a Consumer Financial Protection Agency to monitor mortgages, credit cards and other consumer financial products. The new regulator is a central piece of President Obama's wide-ranging plan to overhaul the nation's financial regulatory system, and Thursday's vote marks an early step in making that vision a legislative reality.

"This is a very significant advance, and I predict it will only get better going forward," said Rep. Barney Frank (D-Mass.), the committee's chairman. "I believe it is a major breakthrough."

The bill is expected to head to the House floor for consideration in coming weeks. Meanwhile, the proposal faces a tricky path through the Senate Banking Committee, where financial lobbyists and other opponents have said they plan to target a handful of moderate, business-friendly Democrats who have expressed skepticism over the Obama administration's original proposal for the new agency.

The administration proposed the new agency in June as part of a larger package of reforms aimed at closing loopholes and reining in the abusive and risky practices that precipitated last fall's economic meltdown. It soon emerged as the most divisive, partisan element of the administration's plan. Republicans almost uniformly have opposed it. Banks and other financial firms, along with powerful lobbying groups such as the U.S. Chamber of Commerce, flooded Capitol Hill to complain that the new agency would add an unnecessary layer of government regulation, increase costs, stifle financial innovation and curtail choices for consumers.
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Frank vowed to produce a bill, and President Obama himself stepped forward earlier this month to scold the financial and business groups that had spoken out against it, saying that they were "fighting to keep every gap and loophole they can find."

Bill far from final

Ultimately, only one Republican on the committee, Rep. Michael N. Castle (Del.), voted Thursday in favor of the new agency. Democratic Reps. Travis Childers (Miss.) and Walt Minnick (Idaho) joined Republicans in voting against the measure.

The final tally brought restrained celebration from those who have fought for the new regulator, many of whom said the bill needs work and faces many challenges ahead as winds through Congress.

"While there is more work ahead, today we are much closer to putting in place strict new rules of the road for the financial industry," Treasury Secretary Timothy F. Geithner said in a statement.

This month, Frank's committee has approved legislation aimed at creating oversight for the largely unregulated derivatives market and is scheduled soon to tackle a bill that would give the federal government authority to wind down large, troubled financial firms.

Thursday's vote came after months of drafting and debate and days of intense discussions. One of the most contentious issues -- and one that threatened to divide Democrats on the committee -- was whether to let state governments protect bank customers by imposing restrictions that go beyond existing federal laws. Large banks and many Republicans fought bitterly against that proposal, known as preemption, saying it would essentially create scores of new regulators and drown firms in a wave of new regulations.

Lawmakers ultimately adopted an amendment by Democratic Reps. Melvin Watt (N.C.) and Dennis Moore (Kan.) that seeks a middle ground. It would dictate that national banks comply with state laws except when a state law has a "discriminatory effect" on national banks relative to state-chartered banks. It also would permit the Office of the Comptroller of the Currency to decide whether a state law interferes with a national bank's business or if it is specifically preempted by federal law.

The committee also granted a major concession to smaller, community banks, agreeing that they would not be directly supervised by a new federal agency, although they would be subject to its rule-making authority.

Public reactions

Consumer groups, who have pushed for the new agency to have broad powers, seemed pleased by Thursday's vote, even as they argued that the current bill should be strengthened to include groups such as auto dealers who extend financing loans.

"We think it's very significant that the first major hurdle has been cleared for this legislation," said Travis Plunkett, legislative director of the Consumer Federation of America. "We are on the brink of a monumental achievement for consumers."

Opponents of the new agency maintained their criticism and were quick to note that plenty of legislative hurdles remain.

"This bill remains a complicated and confusing maze of unclear regulatory standards and ill-defined terms," David Hirschmann, president of the Chamber's Center for Capital Markets Competitiveness, said in a statement. Chris Stinebert, chief executive of the American Financial Services Association, called the vote "a step backward from the goal of improved consumer protection for financial services customers."

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