A new federal consumer protection agency is emerging as the centerpiece of the Obama administration's financial reforms, prompting banking companies and the U.S. Chamber of Commerce to step up their campaign to kill the idea.
In language reminiscent of the rancorous health care debate, bankers and mortgage lenders have gone to Capitol Hill to tell lawmakers the consumer proposal is a government take-over of the relationship between companies and their customers. The U.S. Chamber has launched a $2 million advertising campaign against the plan and is stoking opposition among local chambers around the country.
For example, since a conference call with U.S. Chamber officials about two weeks ago, Jason E. Ebey has been telling his business neighbors near Shreveport, La., to fight the Obama plan. "It's overreaching," said Ebey, who monitors government affairs for a 900-member chamber of commerce. Ebey said he had not read all of the proposed legislation but agreed with the U.S. Chamber that another level of federal regulation was nothing any business needed.
"We're not four years out of Katrina," Ebey said, "and we know how federal regulators can slow things down." The U.S. Chamber has reached out directly so far to a dozen local chambers, sent hundreds of thousands of e-mails to members across the country and has calculated that Congress has received some 22,000 letters in the past month from businesses that oppose the legislation.
President Obama underscored his support for the consumer agency in his speech Monday to Wall Street executives. "We've got to close the loopholes that were at the heart of the crisis," Obama said in his call for regulatory overhaul a year after the collapse of the investment firm Lehman Brothers. "Weaknesses in oversight engendered systematic, and systemic, abuse."
Under the administration's proposal, the Consumer Financial Protection Agency would consolidate regulatory power over mortgages and credit cards and other transactions that now are overseen by multiple agencies, including the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of Currency. The administration contends the new agency is needed to restrict confusing language in mortgages, to prohibit risky loans and to enforce new credit card regulations.
The Obama proposal is contained in a bill now in the House Financial Services Committee. Rep. Barney Frank (D-Mass.), the chairman, today announced another hearing, tentatively scheduled for Sept. 30.
Lenders argue the current protections would be strong enough if existing regulators enforced the power they already have. "The Fed could hire 10 to 15 more employees - but certainly not all the regulatory examiners needed for a whole new agency," said Scott Talbott, head lobbyist for the Financial Services Roundtable, which represents the largest financial companies involved in banking, insurance and investment services.
Opponents also say the agency would slow the credit system and raise costs for every lender and consumer. In its first e-mails this summer, the U.S. Chamber said the consumer agency would have "a dangerous scope" to reach lenders across the financial spectrum - even challenging lay-away plans at department stores or butchers who allow customers to run up monthly tabs.
"The scope is so broad and the powers are so massive ... this is big government," David Hirschmann, president of the U.S. Chamber's Center for Capital Markets, said in an interview. He added that the Chamber has a singular goal: "We want this bill to die."
At hearings on Capitol Hill this summer, financial industry lobbyists argued that a new agency would further complicate an already fragmented regulatory system and add cost and delays to home buying.
Some backers of the administration likened the moves of the Chamber and the financial industry to the strategies used in the health care debate.
"I think this is a 'death panel' argument," said Elizabeth Warren, chair of the Congressional Oversight Panel on the financial rescue, who advocated the creation of a consumer affairs regulatory body. "I've read the statutory language and it doesn't do what the Chamber of Commerce is saying ... It's a way to excite their members to kill the bill."
Warren said that lenders who "engaged in tricks-and-traps opportunities" in their transactions would find problems with the streamlined enforcement proposed under a single agency. "For those people, there's a lot of money at stake," she said.
Democratic supporters have described the agency as the next logical step to credit card reforms passed earlier this year and a necessary linchpin to financial reform. "Everything will cascade from there," one Hill staffer said.
On Tuesday, Obama again cautioned the financial industry against targeting a reform that would ensure consumer controls. "I don't think they're going to succeed in killing it, and I'm going to do everything I can to stop them from killing it," he told Bloomberg News in an interview.
The independent agency would be run by a five-member board with a director appointed by the president and confirmed by the Senate. Supporters say a central goal is to force lenders, both banks and non-banks, to provide simple alternatives to complex mortgage products. Opponents caution that the bill, as now worded, would allow the government to scrutinize every line of credit now available.
"Drafters say that wasn't the intent but the words are there," said Chris Stinebert, president and chief executive of the American Financial Services Association. "You have to go by the words."
The agency would have broad authority over rules that govern services or products that extend credit and loans and parties that act as lenders or, in some cases, investment advisers. Its authority would, except for insurance, include deposit-taking activities, real estate settlement services, money-service businesses and, most broadly
"any other activity that the agency defines, by regulation, as a financial activity."
The financial services industry has seized on that last line to rally opposition across the business sector.
Frank's bill was delayed for markup in July and is not expected to come to a vote before next month. A consumer agency is included in reforms still being worked on in the Senate Banking Committee, said staffers, who also noted that the committee chairman, Chris Dodd (D-Conn.), has openly linked the historic credit crisis to "a spectacular failure of consumer protection."
Consumer groups remain wary about how far Congress will push the politically powerful financial industry. Ed Mierzwinski, an advocate with the U.S. Public Interest Research Groups, said opposition has swelled among lenders and the Chamber for obvious reasons.
"The reason there is opposition is that this proposal would be really effective in protecting the public," Mierzwinski said. "The system failed and these guys still want to keep it."
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