U.S. Senator Shelby counters on financial consumer watchdog

By Reuters Staff
March 1, 2010

By Kevin Drawbaugh and Rachelle Younglai

WASHINGTON, March 1 (Reuters) – A senior Republican U.S. senator has made at least two counter-offers to Democrats on creating a new government watchdog for financial consumers, Reuters learned on Monday from aides and documents.

Senator Richard Shelby proposed making the watchdog a division of the Federal Deposit Insurance Corp, with some rule-writing power and a director who is appointed by the president and confirmed by the Senate, documents showed.

Shelby, the top Republican on the Senate Banking Committee, also has proposed setting up a three-member consumer protection council, said a congressional aide.

Both offers show that negotiations between Shelby and Senator Christopher Dodd, the committee’s Democratic chairman, on a bipartisan financial regulation reform bill are in full swing, but still have some ground to cover.

After marathon talks over the weekend, lawmakers remained snagged on how much rule-writing power the new watchdog should have, no matter where it is located within the government.

“We are at the start of a political dance between Dodd and Shelby. We expect more draft language — and more headlines — throughout the week,” said financial services policy analyst Jaret Seiberg at investment advisory firm Concept Capital.

Tightening bank and capital market oversight is one of President Barack Obama’s top domestic policy priorities.

Nearly a year and a half since a severe financial crisis tipped the U.S. economy into its worst recession in decades, financial regulation has changed little in the face of stiff resistance from banks and Wall Street.

But lawmakers in both parties generally concur that reforms are needed and analysts expect legislation this year.

OBAMA PROPOSED INDEPENDENT AGENCY

Part of the Obama administration’s comprehensive package of reforms unveiled in mid-2009 was a proposal to set up an independent Consumer Financial Protection Agency to regulate mortgages, credit cards and other financial products.

Banking lobbyists quickly targeted killing or weakening the CFPA as their top priority in a wide push against reforms.

Republicans, including Shelby, have rejected the idea of making the CFPA an independent agency, but have been discussing with Democrats the possibility of setting up a new consumer watchdog as a division of a larger regulatory agency.

While some senior Senate Democrats have said they are holding out for an independent agency, Dodd has proposed making the watchdog a division of the Treasury Department.

But Republicans have objected to the rule-writing power Dodd proposed to give the consumer division.

Shelby has proposed a consumer council. But one of its members was to be the director of a proposed new super-cop for the banking industry proposed by Dodd. That super-cop proposal now looks unlikely to make it into final legislation.

In his proposal to put the watchdog inside the FDIC, Shelby urged that the director of the new consumer division report to the FDIC director, and that the FDIC board must approve new consumer protection rules.

Iowa Attorney General Tom Miller, an advocate of establishing a strong consumer agency, expressed concern about Shelby’s approach.

“To have the rules then passed on to all the regulators, that is a prescription for stalemate and potential mischief and too much influence by the banking industry,” said Miller. (Editing by Andrea Ricci) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

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