WASHINGTON — Lawmakers on a special negotiating committee narrowing differences in the broader rewrite of financial regulation in generations agreed in principle Tuesday to create a new government agency to oversee credit products offered to consumers.
Senators on the conference committee late Tuesday accepted a host of House of Representatives amendments, all but clearing the way for creation of what will be called the Bureau of Consumer Financial Protection to be housed at the Federal Reserve and partially funded by the central bank.
The panel would address several of the contributing factors to the U.S. financial crisis, especially mortgage lending, a root cause of the crisis. Big non-bank lenders and mortgage brokers, who together exploited gaps in federal regulation or located in states with weak local regulation, will now come under the purview of the bureau. Similarly, payday lenders who have had little direct federal regulation now will be under a regulatory microscope.
"Gaming the regulatory system will become totally something of the past," said Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee and a lead negotiator.
Patterned loosely after a similar panel in Canada, the Bureau Consumer of Financial Protection would be headed by an independent director who must be appointed by the president and confirmed by the Senate. The bureau will get powers of autonomy to write rules for consumer protections for almost all lenders that extend credit to consumers.
In a victory for community banks and some smaller regional lenders, the bureau's regulatory reach will be limited to lenders with assets of $10 billion or more. For those under that threshold, their appropriate regulator would still examine their consumer credit programs although the bureau would still write rules governing all lenders.
Although no provision is set in stone until the entire negotiation is over, and a couple of controversial provisions were set aside for more back and forth offers, participants from the House and Senate agreed that the new consumer panel will set rules for and police mortgages, credit cards, student loans, many car loans and even payday lending.
The idea behind the new bureau is that consumer protection existed in numerous federal regulators but wasn't a front-burner issue for any of them, especially the Fed, which knew of growing problems in mortgage lending but chose not to act until they jeopardized entire economy.
"We have won our major priority, which is winning the agency. All the major banks in the world and the (U.S.) Chamber of Commerce tried to kill the agency and they lost," said Ed Mierzwinski, director of consumer programs for the National Association of State Public Interest Research Groups. "The basic message is that there will be a consumer agency."
Republicans opposed creation of the bureau, arguing that existing regulators should continue to retain consumer enforcement powers and that consumer protection shouldn't be separated from regulation of the safety and soundness of lenders.
"We believe they're two sides of the same coin, and to protect the consumer you have to at the same time consider safety and soundness," said Rep. Spencer Bachus, R-Ala., the top House Republican on the negotiating committee.
However, Democrats, who control Congress, are delivering on what President Barack Obama insisted be a centerpiece of any revamp of financial regulation.
"This defense of the existing model of consumer protection comes only from people who don't think consumer protection is very important," said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee and a shepherd of the conference process.
Senate Democrats on the negotiating committee beat back amendments from Republicans that sought to limit the power of the independent director, who the legislation would require to appear twice a year before Congress.
While senators on the negotiating committee accepted most of the counteroffers from their House counterparts, the senators offered a handful of counteroffers pertaining to the consumer panel that still must be accepted by House members.
One sticking point: The extent to which auto dealers who lend to consumers are covered by the bureau. The original House legislation exempted auto dealers; the Senate version didn't, and the counteroffer from Dodd late Tuesday would bring some oversight of auto dealers. Dodd's proposal also rejects a House request to exempt pawn brokers from the dictates of the new consumer bureau.
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