U.S. Senate banking panel moves to muzzle consumer watchdog
By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Jan 12 (Reuters) – The Obama administration’s proposal to create a new U.S. agency to protect financial consumers is fast losing support in the U.S. Senate Banking Committee, said lobbyists and analysts on Tuesday.
In a potential setback for the White House, committee members were said to be talking about reducing the proposed agency’s status, possibly making it instead a division of a new systemic risk regulator or a new super-cop for banks.
Stripped of independent agency status, the watchdog would be less formidable than President Barack Obama’s proposal for a new U.S. Consumer Financial Protection Agency, or CFPA.
“CFPA is losing steam by the day right now,” said Joseph Engelhard, a policy analyst at investment advisory firm Capital Alpha Partners in Washington, D.C.
Some speculation has suggested that the first chief of Obama’s proposed CFPA could be Elizabeth Warren, the outspoken Harvard Law School professor who now chairs a panel overseeing the government’s $700-billion financial bailout program.
The CFPA “will be watered down,” Engelhard said. “The days of Elizabeth Warren raining down lightning bolts on the financial industry are waning.”
The banking industry and Republicans are fighting hard to block or weaken the CFPA, which would regulate credit cards, mortgages, payday loans and other financial products, posing a threat to the profits of many financial services businesses.
Opponents have said the agency would stifle financial innovation and burden businesses with another layer of bureaucracy and costs, while supporters say it is badly needed to shield consumers from sharp practices by financial firms.
“Financial reform is badly needed to protect working families and small businesses by reining in the greedy, reckless behavior of big banks on Wall Street,” said Heather Booth, executive director of Americans for Financial Reform, a group that supports a strong CFPA.
As proposed by Obama, the CFPA would strip existing agencies, including the Federal Reserve, of their consumer protection duties and centralize them in a new organization devoted solely to the job. The Fed and other agencies have been criticized for giving short shrift to consumer protection.
The U.S. House of Representatives last month approved a financial regulation reform bill that includes the CFPA, although its scope was reduced from the Obama proposal.
“My sense is that it will probably get watered down in the Senate … The Senate always waters down what the House does. I don’t think this will be any exception,” said Greg Valliere, policy analyst at investment advisory firm Soleil Securities.
Senator Christopher Dodd, chairman of the Senate Banking Committee, introduced legislation last year that also called for establishing the CFPA. But Republican committee members blasted the Dodd bill immediately after it was unveiled.
Now committee members are trying to craft a new bill with bipartisan support. Dodd — who said last week that he will retire at the end of 2010 — said on Monday he hopes to move a bill from the committee to the Senate floor within weeks.
If the Senate approves a financial regulation reform package, it would have to be reconciled with the House-passed measure before a single compromise bill could be sent to Obama to be signed into law.
(Editing by Andrew Hay)
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