State AGs back Obama on financial oversight agency

State attorneys general are pushing Congress to set up a federal agency to oversee consumer financial products, backing one of the most controversial aspects of President Barack Obama's proposed financial regulatory overhaul.

The 24 attorneys general said in a letter this week to House and Senate lawmakers that a new agency is "vital" and the "best option for meaningful consumer protection."

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But the letter represents the views of almost only Democratic attorneys general in support of a proposal that faces widespread opposition from Republican lawmakers on Capitol Hill as well as some concerns from Democrats. The letter was signed by 22 Democrats; one Republican, Mark Bennett of Hawaii; and one independent, Alicia Limtiaco of Guam.

"We believe that an independent federal consumer agency, with a focus on consumer protection, will help restore confidence in the financial marketplace and should be implemented as swiftly as possible," the attorneys general wrote.

The financial services industry has lobbied heavily against the proposal, arguing that it would hurt business and drive up the cost to consumers for a range of financial products, such as mortgages and credit cards. Meanwhile, existing federal regulators, including the Securities and Exchange Commission (SEC) and the Federal Reserve, have raised questions about the proposal.

The administration, for example, wants to shift the consumer protection responsibilities of the Federal Reserve to the new agency.

House Financial Services Committee Chairman Barney Frank (D-Mass.) had intended to pass legislation setting up the agency before the August recess, but postponed committee debate amid strong lobbying opposition.

Financial trade associations, such as the Consumer Bankers Association, say the agency proposal would also hurt business by creating a patchwork quilt of different state laws rather than setting one federal standard.

The letter urges lawmakers to preserve the power of state officials to pursue tough regulations.

"The legislation as introduced gives state regulators authority to enforce their consumer laws against federally chartered institutions, and we urge Congress to keep this provision in the final bill," they wrote.