By Silla Brush - 10/11/09 12:19 PM EDT
House lawmakers will hold markups this week on two key parts of
President Barack Obama's proposal to overhaul the financial regulatory
The House Financial Services Committee is scheduled to mark up legislation that creates a new federal Consumer Financial Protection Agency (CFPA), which would regulate products such as credit cards and home loans. The committee is also slated to consider legislation that would regulate the multi-trillion dollar market for financial derivatives, instruments widely used to hedge risk.
The Obama administration, meanwhile, has been ramping up its pressure on lawmakers to pass both pieces of the reform effort. Senior Treasury Department officials, including Secretary Timothy Geithner, held more than ten meetings on Capitol Hill this week to press for financial regulations.
"The patchwork system of regulations we have now has failed to prevent these abuses," Obama said on Friday. "With seven different federal agencies each having a role, there is too little accountability, too many loopholes, and no single agency whose sole job it is to stand up for people."
Lobbyists on the new CFPA agency are focusing on a handful of provisions, and the biggest battle next week will be over the scope of the agency's power. At heart, the battle, which divides Democrats, is over whether the new agency should preempt state and local authorities.
The legislation sets up a minimum federal standard from the new agency but would also allow state officials to pursue stricter or stronger regulations. The industry is lobbying heavily in favor of allowing federal officials to preempt state laws.
Chairman Rep. Barney Frank (D-Mass.) supports the administration, but centrist New Democrats on the committee are in favor of preemption. The issue will likely be the most contentious part of the markup.
Frank had scaled back parts of the administration's original proposal so it did not affect non-financial businesses. Many of those lobbying groups expressed cautious support for the bill after the revised draft was released. But several of those groups have reassessed the bill and oppose it.
The National Automobile Dealers Association (NADA), one of those groups that had expressed initial praise for the revised draft, sent a letter to lawmakers this week opposing the bill unless it is revised. The association criticized Frank's effort to exempt auto dealers from the new agency, saying that it exempts only car brokers and car buying services but not dealers. And the association argued that the exemption for merchants did not exclude auto sales that are financed.
On the derivatives legislation, the financial industry and big banks are working hardest on defining an exemption from clearing for "major swap participants." An SEC official testified this week that the exemption for major participants that use derivatives primarily for "risk management" purposes is overly broad and ill defined.