Democrats vow fight with banks over U.S. consumer protections
By Kevin Drawbaugh
WASHINGTON, July 22 (Reuters) – Congressional Democrats pledged on Wednesday to engage the banking industry in a summer-long debate over the Obama administration’s call for the creation of a U.S. Consumer Financial Protection Agency.
The proposed agency has swiftly emerged as the most controversial aspect of President Barack Obama’s broad plan to reshape U.S. financial regulation in response to the deepest banking and capital markets crisis in generations.
Rebounding from the crisis after massive taxpayer aid, big banks are unleashing swarms of lobbyists onto Capitol Hill to try to block the CFPA proposal, which would threaten their profits, and which they say would compromise bank oversight.
The banks’ “highest priority is killing this agency … I’ve been disappointed with that,” said Representative Barney Frank, chairman of the House Financial Services Committee, at a news conference where Democrats launched a pro-CFPA campaign.
Backed by a coalition of public advocacy groups, the campaign marks the first open clash between supporters of the Obama reforms and the financial services industry, which until recently had been relatively quiet about its objections.
“We will support efforts to ensure consumers have the information they need and are protected,” said Thomas Donohue, president of the U.S. Chamber of Commerce, the nation’s largest business lobbying organization.
“We will oppose efforts that fail to address the weaknesses of our current regulatory structure by simply adding new layers of government,” Donohue said in a statement.
Frank’s committee has postponed a session to draft legislation and vote on the CFPA proposal. It had been set for next week, but it was put off until September.
The banks want “a big national debate over this and so that’s what we’re going to have,” Frank said.
Democratic Representative Brad Miller said the CFPA would protect consumers from high fees, deceptive marketing and other unfair practices of banks and financial firms that allow them to continue making “vulgar profits and compensation.”
“So, of course, they’re against it,” Miller said.
OTC DERIVATIVES TARGETED
In a related development, U.S. Treasury Department Deputy Secretary Neal Wolin said in a speech on Wednesday morning that Treasury next week will deliver draft legislation to Congress on the regulation of over-the-counter derivatives.
Frank’s committee heard details later in the day on the administration’s thinking in that area at a hearing from the heads of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
CFTC Chairman Gary Gensler told lawmakers that all derivatives dealers should face capital, margin, conduct and record-keeping rules. He urged bankruptcy law changes to protect against dealer insolvencies and position limits for CFTC-regulated OTC derivatives that affect price discovery.
Democratic Representative Paul Kanjorski said at the hearing that the views of Gensler and SEC Chairman Mary Schapiro, who also testified, would help Congress “to sensibly regulate this dark corner of our financial markets.”
Republican Representative Judy Biggert, a committee member, said she was concerned that a crackdown could harm financial markets’ ability to innovate. “It’s crucial that we strike the right balance and not overreact,” she said.
Separately, a group of Democrats said on Wednesday they will introduce OTC derivatives legislation, resembling the administration plan, that would set up a new Treasury unit to coordinate OTC derivatives regulation by the SEC and CFTC.
On another front, Federal Reserve Chairman Ben Bernanke testified to the Senate Banking Committee on Wednesday and sought to defend the central bank’s widely criticized record on handling its consumer protection responsibilities.
The Fed, and six other federal agencies, would be stripped of such duties under Obama’s CFPA proposal to centralize financial consumer protection under one new organization.
Bernanke admitted that the Fed had not done as good a
job as it should have protecting consumers in the past, but he made a concerted pitch to keep these responsibilities, telling lawmakers the Fed would take these duties very seriously.
(Additional reporting by Charles Abbott, Alister Bull, Karey Wutkowski, Russ Blinch, Patrick Rucker, Karen Brettell)