Fri Jan 15, 2010 5:12pm EST
Dodd may scrap consumer protection agency - sources
REGULATORY NEWS | BONDS
* U.S. business lobby wary, still concerned
By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Jan 15 (Reuters) - Consumer groups urged the chairman of the U.S. Senate Banking Committee not to buckle to Republicans and bank lobbyists trying to kill the creation of an independent agency to protect Americans from risky financial products.
In an effort to win bipartisan support for a financial reform bill, committee chairman Christopher Dodd may scrap plans for an independent regulator to oversee mortgages and other financial products, sources have said.
The Consumer Financial Protection Agency (CFPA) is a central element of a financial industry overhaul that the Obama administration proposed last year. Watering down the agency would represent a major setback for the White House and big win for the slew of U.S. business groups that are firmly opposed to such a plan.
As reported by Reuters on Tuesday, support for the proposal is fast fading among committee members. [ID: nN12211768]
"We urge Chairman Dodd not to cave to the big banks and their army of lobbyists who have made killing the CFPA one of their top priorities," said Heather Booth, the director of consumer lobbying group Americans for Financial Reform. "If the big banks win, the consumers will lose," she said in a statement.
Late last year, Dodd introduced a sweeping draft bill to regulate everything from banks to the $450 trillion over-the-counter derivatives market.Senate Republicans immediately rejected his proposal. Now lawmakers from both parties are negotiating the draft's most controversial provisions, such as the consumer agency and how to handle troubled financial firms.
Dodd, who as chairman of the banking committee is leading negotiations over the bill, may reduce the scope of the consumer agency and instead make it a division of a new systemic risk regulator or a new super-cop for banks, sources have said.
Watering down the consumer agency could win Republican support for his entire financial reform bill -- a piece of legislation that Dodd could add to his legacy when he retires from the Senate at the end of the year.
INDUSTRY STILL WARY
Industry lobbyists remained wary of the potential changes. Opponents of the consumer group have said it will stifle financial innovation and raise regulatory costs. Meanwhile supporters say it is needed to protect consumers from dubious practices and products of financial services firms.
As proposed by the White House, and in the draft bill Dodd introduced last year, the CFPA would strip existing agencies such as the Federal Reserve of their consumer protection duties and centralize them in one organization.The U.S. House of Representatives last month passed a regulation bill that includes an independent consumer agency.
Consumer advocacy group Consumers Union also urged the Senate to preserve the new agency. "Consumers Union urges you not to allow these institutions to profit from their reckless behavior and then destroy any hope for legislation that would protect consumers from the kind of abusive financial practices that helped trigger our current economic crisis," the group said in a letter to U.S. senators. (Reporting by Kevin Drawbaugh and Rachelle Younglai; Editing by Tim Dobbyn)