Battle lines over Obama consumer agency
Plan to set up watchdog is first battle in long road to regulatory reform. Industry steps up efforts in opposition as administration releases legislation.
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WASHINGTON (CNNMoney.com) -- In the debate over how to prevent the next financial crisis, the first fight has already erupted -- and it's over a proposal to create a new agency to protect consumers.
On Tuesday, the Treasury Department sent to Congress a 150-page draft of a bill with new details about its plan for a regulator for mortgages, credit cards and other financial products. The Consumer Financial Protection Agency would be run by a presidentially-appointed, five-member board and wield subpoena power and wide-ranging investigative clout.
The proposal has the support of consumer groups and populist fervor at its back.
When it was proposed by President Obama earlier this month, Senate Banking Committee Chairman Chris Dodd, D-Conn., very publicly asked industry groups, such as the U.S. Chamber of Commerce, that were blasting the idea: "What planet are you living on?"
However, as a House panel last week started to look at the best ways to create such an agency, the questioning from lawmakers of both parties suggested that establishing the agency won't be an easy slam dunk for White House.
Top Republicans are criticizing the proposal as more bureaucracy, saying that regulators failed to enforce current rules. And a few Democrats voiced concerns about the kinds of powers the regulator should get.
"I think there's a high probability that this ends up going into law, but the fights will be over how it's being done, who's being covered and how wide the net should be cast," said Douglas Elliott, an economist and former investment banker at the Brookings Institution in Washington.
Obama had already announced that the new agency would be tasked with making it easier for consumers to understand mortgages, credit cards and other financial products.
One of its jobs would be to enforce a set of recently enacted credit card protections aimed at preventing banks and card-issuers from hiking fees and interest rates, according to the legislation released Tuesday.
The bill also proposes an even broader swath of industry players that could fall under the regulator's realm. These include title insurers, payday lenders and some smaller investment advisers not already registered with other regulators.
Also, the bill suggests that the agency would be paid for through fees levied on the companies it regulates as well as congressional appropriations. But that means industries would have to dig into their pockets.
One powerful lobbying group, the Financial Services Roundtable, which represents big banks, came out swinging.
The proposed regulator "would actually harm consumers by increasing the cost of financial products, and reducing the availability of credit and consumer choices," Steve Bartlett, the group's chief executive, said in a statement Tuesday.
For their part, Treasury officials sounded confident that opposition by banks will be a tough sell.
"That's a very hard argument for a bank to make: that the status quo was protective enough," Michael Barr, an assistant Treasury secretary, told reporters Tuesday. "I don't envy them that position to have to argue."
Yet lawmakers are likely to scrutinize the Obama proposal.
The House Financial Services Committee last week heard from a panel of experts, including Elizabeth Warren, a Harvard University Law professor considered the author of the idea for the new agency.
Republicans openly blasted the idea.
"What's troubling is that ... a panel of consumer experts couldn't even agree amongst themselves what financial products rose to the level of being anti-consumer," Rep. Jeb Hensarling, R-Texas, said in a statement Tuesday. "How then, do they propose to come to a consensus on what to regulate in the open market?"
However, there will be some differences of opinions among Democrats, as well.
House Financial Services Chairman Barney Frank, D-Mass., suggested that he agreed with consumer advocates who don't like the proposal's plan to give the the new regulator power to enforce the Community Reinvestment Act, which pushes banks to make loans to low-income households.
And Rep. Brad Sherman, D-Calif., warned last week that he was concerned that Congress would cede some of its consumer law-making power to the executive branch if it established the agency.
"Is the goal here to create a law enforcement executive branch agency, or to create a law making agency that would decide all the issues that I spent 13 years on this committee arguing about?" Sherman asked on Thursday.