Democrats look to resolve preemption issue in Wall Street bill

Senate Democrats are moving to resolve internal splits over the federal government’s ability to preempt state consumer financial regulations.

A key issue under the Wall Street overhaul bill now under debate in the Senate is whether states will be able to pursue tougher regulations than those set by the federal government.

Democrats have clashed on the preemption issue, with several centrists arguing in favor of retaining the current system of strong federal powers. The White House and consumer advocacy groups have pushed for more than a year to allow state officials to go beyond the federal minimum.

Sen. Tom Carper (D-Del.) is slated to unveil a modified amendment Tuesday that would alter Senate Banking Committee Chairman Chris Dodd’s (D-Conn.) legislation by limiting the powers of state attorneys general to enforce consumer financial regulations.

Carper’s amendment, a copy of which was circulating widely on Tuesday, would allow state attorneys general to enforce consumer regulations against any state-licensed or chartered bank. 

State officials would also have limited powers to enforce regulations on national banks that are prescribed by the new consumer protection office.

The Carper amendment would also change Dodd’s bill by removing a requirement that the federal government, prior to preempting states, must find in current federal law a substantive standard that already applies.

The Senate could vote on the amendment on Tuesday.