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Congress nears deal on consumer protections

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- Lawmakers agreed on Tuesday to house a powerful new consumer finance regulator inside the Fed.

And they're moving toward exempting auto dealers from the tougher oversight of the new consumer regulator. Additionally, lawmakers agreed to allow the Fed to set rules when it comes to capping debit card swipe fees.

The Senate and the House have passed different versions of Wall Street reform legislation, and last week a negotiating committee of 43 lawmakers started melding the two bills together.

Lawmakers spent most of Tuesday considering consumer protection issues. They'll continue debating some parts of consumer protection on Wednesday, including how to fund the agency.

Overall, the Wall Street reform bill aims to strengthen consumer protection, shine a light on complex financial products and create a new process for taking down giant, failing financial firms.

House Financial Services Chairman Rep. Barney Frank, D-Mass., said Tuesday that negotiators are on schedule to finish up melding the bills by Thursday. Sen. Chris Dodd, D-Conn., suggested that lawmakers will work late into the night if they need to.

Both the Senate and the House bills call for a new consumer protection agency to crack down on excessive and hidden fees in mortgages and credit cards.

However, the House bill created a stand-alone agency. The Senate's creates a consumer regulator housed inside the Fed, although the regulator wouldn't actually report to the Fed. Both chambers agreed to go with the Senate version.

"It's a strong, independent consumer agency," Frank said. "When consumer protection is the afterthought of the bank regulators, then it is not done very well."

Democrats consider the consumer financial regulator to be the signature piece of financial reform, since it's the one that most directly impacts the public. The new consumer regulator would have broad oversight over the kinds of loans that consumers buy and will be tasked with objectives like banning penalty fees for those who pay off mortgages early.

The consumer protection agency has also been one of the hardest-fought battles, as banks have argued that any regulator that oversees consumer protection should also ensure that banks are safe and sound. That's the way the current regulatory system works.

"We are very concerned about separating safety and soundness from consumer protection," said Rep. Spencer Bachus, R-Ala. "We believe they're two sides of the same coin."

Under the House offer being discussed Tuesday, the new consumer regulator would have power over payday lenders, companies that do check cashing and fund transfers, as well as private student loan providers. But the consumer regulator would not regulate auto dealers.

Dodd suggested a compromise on the auto dealer loophole. He wants to require the Federal Reserve to keep its consumer protection power over auto dealers, but he also wants to order the Fed to follow the consumer protection agency's lead as it creates new rules regulating consumer loans.

Dodd said the Fed could refuse to march in lockstep with the consumer protection regulator "as long as they explained why," Dodd said.

It was unclear late Tuesday if the House would go along with those that proposal.

President Obama had personally lobbied against efforts to exclude auto dealers from tougher oversight, since dealers are a major source of auto loans, one of the most common types of consumer loans.

Also, lawmakers in both chambers agreed to allow the Fed to regulate debit card swipe fees. Retailers pay those fees to banks and network operators like Visa and Mastercard. To top of page

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