New consumer financial agency passes its first test

The core elements of a new consumer financial protection agency passed an early test on Thursday when a key House panel voted in support of the proposal.

The House Financial Services Committee, on mainly party lines, voted 39-29 to create a new federal agency with power to regulate products such as credit cards, home loans and payday loans.

Once viewed as possibly too controversial to pass Congress, the vote lends momentum to a central plank of President Barack ObamaBarack Hussein ObamaAll five living former presidents to attend hurricane relief concert Overnight Health Care: Schumer calls for tying ObamaCare fix to children's health insurance | Puerto Rico's water woes worsen | Dems plead for nursing home residents' right to sue Interior moves to delay Obama’s methane leak rule MORE’s broader effort to overhaul the financial system. The full House aims to vote on financial regulatory legislation this year, while action in the Senate may take until 2010.

Committee Chairman Barney Frank (D-Mass.) said that while the bill “is not perfect,” it represents “a major breakthrough.” Obama praised the vote and continued his sharp criticism of the industry for lobbying against new regulations following the worst financial crisis since the Great Depression.

Opponents of the agency — financial lobbyists, outside critics and the vast majority of the Republican Party — are already making their case in the Senate to scale back or scuttle the plan.

“It will take a major mobilization to protect it against obstruction in the Senate,” said Robert Borosage, of the liberal Campaign for America’s Future. Elizabeth WarrenElizabeth Ann WarrenOvernight Finance: Lawmakers grill Equifax chief over hack | Wells Fargo CEO defends bank's progress | Trump jokes Puerto Rico threw budget 'out of whack' | Mortgage tax fight tests industry clout Michelle Obama is exactly who the Democrats need to win big in 2020 Wells Fargo chief defends bank's progress in tense Senate hearing MORE, the Harvard University professor who initially proposed the idea, said on Thursday that she “never thought she’d see this day.”

The American Bankers Association (ABA), the nation’s biggest banking lobby, opposes the bill as passed. The Credit Union National Association (CUNA), one of two major credit union lobbies, said it has “significant concerns” with the measure.

Over the course of a 16-hour markup, lawmakers voted to support the core elements of the Consumer Financial Protection Agency (CFPA): the creation of a fully independent agency; rulemaking authority over a broad range of financial products and the vast majority of the banking industry’s assets; and a reversal of the federal government’s power to fully pre-empt actions by state and local officials.

Only two committee Democrats, Reps. Walt Minnick (Idaho) and Travis Childers (Miss.), opposed the bill. Only one Republican, Rep. Mike Castle (Del.), voted in support.

While the central elements of the plan survived, Frank made a series of changes that alter the Obama administration’s original proposal:

*  Frank ruled out a requirement that the agency could mandate that firms offer “plain vanilla” products alongside other financial products.

*  The committee passed an amendment, sponsored by Democratic Reps. Dennis Moore (Kan.) and Brad Miller (N.C.), that would exempt all but roughly 115 banks and 80 credit unions from the full power of the agency. Smaller firms would still fall under the agency’s rulemaking authority.

*  Lawmakers carved out exemptions for certain businesses. The National Automobile Dealers Association (NADA) won an exemption for auto dealers following a major lobbying effort. Lobbyists pressed hard for an exemption for credit, mortgage and life insurers.

* The panel altered an administration pitch for an outside advisory board. The House committee said the new agency’s director should set up an advisory board and also that the agency should have a separate oversight board made up of the heads of existing banking agencies, other federal officials and consumer advocates. Neither outside group would have the power to override the agency.

The plan’s opponents will press lawmakers to alter the bill before it comes to a full vote in the House, while some lobbyists have already staked their ground in the Senate. The relationship between state and federal power under the new agency remains one of the most contentious aspects of the proposal.

The banking lobby suffered a defeat when the panel voted to allow state and local officials to pursue additional or stronger regulations than the federal standards. The panel supported a tweak to the proposal that would allow federal officials to pre-empt state actions that “significantly interfere” with the business of national banks. The financial lobby is fighting vigorously for full pre-emption.

Meanwhile, the Independent Community Bankers of America (ICBA), which lobbied heavily in favor of the small bank exemption, continues to push for changes on the agency’s rulemaking capacity.