Controversial financial protection proposal in spotlight with hearing

Lobbying over a proposed federal agency to regulate consumer financial products will get more intense now that lawmakers have scaled back the Obama administration’s proposal.

Rep. Barney Frank (D-Mass.) released a new draft of the proposal for a Consumer Financial Protection Agency (CFPA) that limits the scope and breadth of the industries that are covered. Frank, chairman of the House Financial Services Committee, restricted several provisions to dampen criticism from the non-financial lobbyists opposed to the bill and to win over centrist Democrats.

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The committee will hold a closely watched hearing on Wednesday on the CFPA proposal.

The financial lobby is overwhelmingly opposed to the new agency, but some lobbyists are tailoring their efforts to rewrite specific provisions in the bill. Banks and other business lobbyists are making a strong push that the new agency’s rules and regulations should preempt state officials.

Frank and the Obama administration believe the new agency should set a floor for regulation and allow state officials to pursue additional or stricter regulations. The financial industry believes that will create a patchwork quilt of different state regulations that increases the cost to firms. Those costs might then be passed on to consumers.

“What's going to happen to a customer who moves from one part of the metro area of D.C. to another? Will they have different rules just depending on geography?” said Tracey Mills, spokeswoman for the Consumer Bankers Association.

Centrist Democrats, particularly the New Democrats, support federal preemption. Rep. Melissa Bean (D-Ill.) is working on an amendment that could be offered in committee that would back preemption.

The industry’s efforts are running into a battle with Frank and consumer-advocate allies who are rallying to support the power of state officials to pursue stronger regulations.

“We are walking around on the Hill just like every one else. The Blue Dogs and New Democrats are hearing from us,” said Ed Mierzwinski, U.S. PIRG consumer program director.

“The attorneys general are weighing in, state officials are weighing in; we expect lawmakers to hear a lot from their state colleagues,” said Travis Plunkett, legislative director at the Consumer Federation of America.

Other centrist Democrats remain concerned about splitting the consumer protection powers of existing bank regulators from their responsibilities to oversee the firms’ safety and soundness. That has been a major issue raised by the powerful lobby for small and community banks.

The Independent Community Bankers of America (ICBA) is focused on retaining regulators’ power to examine and enforce rules.

“We just think it’s common sense to leave examination of banks with the bank examiners that already exists,” said Steve Verdier, senior vice president at ICBA. “It minimizes the regulatory burden on institutions that didn't cause the burden and minimizes the burden on the new agency.”