House Democrats reached a deal on a thorny provision in financial overhaul legislation that held up debate on Wednesday, Rep. Barney Frank (D-Mass.) said.
Centrist Democrats, particularly the New Democrat coalition and Rep. Melissa Bean (D-Ill.), pushed strongly in support of an amendment that would expand the proposed Consumer Financial Protection Agency’s (CFPA) ability to override state regulations.
Negotiators said they reached a middle ground on the preemption issue, which will be inserted in the final revision, called a "manager's amendment." In addition, New Dems say they've been promised a floor vote on a centrist amendment loosening the rules on derivatives.
"It's neither no preemption or total preemption. It's somewhere in the middle," said House Financial Services Chairman Barney Frank (D-Mass.). "The differences have been narrowed and we're getting something both sides can live with. I don't think it will be a significant retreat."
The compromise came after hours of shuttle diplomacy in the Capitol, according to an aide with knowledge of the circumstances. House Majority Leader Steny Hoyer (D-Md.) the leadership liaison to centrists shuttled back and forth between conference rooms in the speakers suites.
Bean who pushed to limit states ability to write laws tougher than federal law, sat in one of the rooms. In the other were Pelosi and Frank. After numerous trips back and forth, the often volatile Frank, attributed Hoyer's patience to his Danish heritage.
"From now on only Scandinavians can do negotiations," Frank quipped.
New Dems announced they were happy with the deal, contingent on seeing the final language.
"This agreement will allow us to create an empowered Consumer Financial Protection Agency that will place tough new federal regulations on financial institutions from large banks to payday lenders to mortgage brokers," Bean and New Dem Chairman Joe Crowley (D-N.Y.) said in a joint statement.
Blue Dog Democrats were also supporting a separate amendment backed by Rep. Walt Minnick (D-Idaho) that would gut the CFPA and replace it with a council of existing regulators. Aides said the Minnick amendment would come up for debate in the full House.
“I don’t think frankly that has ever been as much of a bone of contention,” Frank said comparing Minnick’s amendment to the preemption issue. “Frankly I think that will be defeated if it comes up.”
New Democrats flexed their muscle all day on Wednesday, with aides saying that they would consider blocking floor consideration by voting against the “rule” that allows debate to begin. Rules reflect the wishes of House Speaker Nancy Pelosi (D-Calif.) and set out which amendments can be debated.
“New Democrats feel strongly about regulatory reform,” an aide to a New Dem lawmaker said earlier in the day. “They may consider a ‘no’ vote on the rule if they don’t consider it to be fair.”
House leaders had expected to begin debate on the regulatory bill in mid-afternoon, but the New Dem revolt caused the House to go into recess instead. They had expected to start with a vote on a separate rule allowing debate to begin. The recess indicates leaders were worried that enough centrists would vote against it to block the bill.
Republicans generally unite to vote against the Democrats’ rules. So it takes only 41 Democratic defections to block the bill. New Dems and House leaders negotiated even as Rules Committee members met on a separate rule that would determine which of 240 requested amendments they would allow.
The agreement was reached shortly after 6 p.m., allowing debate to resume. The first of two rules was approved around 8 p.m. The real test comes Thursday, after members have had a chance to review the language of the rule and managers amendment.
The situation was unusual because it’s more common for Blue Dogs than New Dems to threaten to “take down the rule.” New Democrats generally pride themselves on getting their concerns addressed more quietly before they feel the need to issue threats.
Bean and New Democrats have been longstanding supporters of federal pre-emption, while Frank, more liberal Democrats and a wide array of consumer groups want to allow for greater state powers.
The Obama administration’s original proposal on financial regulation called for allowing states to pursue greater restrictions.
Some financial lobbying interests, including the Financial Services Roundtable, which represents large banks and financial institutions, are strongly in support of Minnick’s effort. But smaller banks, represented by the Independent Community Bankers of America (ICBA), were not making an all-out push for it.
Leading House Republicans said they did not expect any GOP members to support the bill on the floor.
Republicans have referred to the financial overhaul as “Barney Frank’s TARP II,” a reference to the $700 billion financial bailout, known officially as the Troubled Asset Relief Program (TARP). GOP Reps. Scott GarrettScott GarrettHuizenga to chair influential subcommittee overseeing Wall Street Congress asserts itself The Hill's 12:30 Report MORE (N.J.), Jeb Hensarling (Texas) and Tom Price (Ga.) held a small press conference on Wednesday arguing that the bill creates a $200 billion bailout fund.
Under the legislation, large financial firms would pay money into a fund used for the costs of dissolving a failing financial firm. Federal regulators would administer the fund.
The Obama administration is trying to create a system for winding down failing firms so federal officials do not need to request emergency bailout funds from Congress.
Republicans say that means more bailouts.
“Why do you have a bailout fund if you’re not going to bail people out?” Hensarling said. “If you build it, they will come.”
This story was updated on Dec. 10.