Plans for consumer shield pared back

WASHINGTON (CNN) -- Financial consumers would have fewer protections than originally envisioned under a draft of a bill being circulated on Capitol Hill.

The latest proposal for a Consumer Financial Protection Agency would no longer require financial institutions to offer a "plain vanilla" version of its products, such as a basic 30-year fixed rate mortgage. That would free lenders to concentrate on selling more sophisticated and expensive products.

The changes were proposed in a memo sent to Democratic members of the House Financial Services Committee on Tuesday evening by its chairman, Barney Frank.

The financial crisis sparked the idea for the agency, to make financial products safer for consumers. Advocates say such an agency could have prevented the subprime mortgage crisis and the resulting financial meltdown.

The agency would be able to examine and subpoena information from banks, while regulating financial tools such as mortgages and credit cards. Such an agency could determine the language on loan applications, how it's presented and what the disclosure requirements are.

The new proposal would exempt non-bank businesses -- such as merchants and retailers -- from oversight. That means they could continue to offer customers tabs and layaway plans without facing a new layer of regulation, Frank's memo said. Accountants, real estate brokers and agents also would be exempt.

John Taylor, chairman of the National Community Reinvestment Coalition, a housing advocacy group, described the draft as a disappointment, saying it lacks some of the safeguards and independence of the original proposal.

A consumer financial product safety agency was originally proposed by Harvard professor Elizabeth Warren, now chairwoman of the Congressional Oversight Panel overseeing the bailout of the banking industry.

In an article posted in 2007 by the journal Democracy, Warren said there were more regulations guaranteeing the safety of a toaster than there were guaranteeing the safety of mortgages.

President Barack Obama has embraced the idea of such an agency, reiterating his support in a speech before Wall Street last week.

-- CNN's Gerri Willis contributed to this report.