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Geithner Shows Flexibility On Regulator

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Geithner Shows Flexibility On Regulator

Economy

Geithner Shows Flexibility On Regulator

Geithner Shows Flexibility On Regulator

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Treasury Secretary Timothy Geithner agreed Wednesday to scale back provisions for a new agency to regulate consumer credit. Geithner testified on Capitol Hill, and said he agreed with House Financial Services Chairman Barney Frank, who has opposed the proposed agency's scope.

ROBERT SIEGEL, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

MADELEINE BRAND, host:

And I'm Madeleine Brand.

A year after Wall Street's meltdown, there's a major push to revamp how the financial services industry is regulated. Treasury Secretary Timothy Geithner made his case before a key House panel today. And in a moment, we'll hear from an influential senator, Democrat Christopher Dodd on his ideas and how they differ from Geithner's.

First, though, NPR's Audie Cornish was listening to the testimony in the House.

AUDIE CORNISH: Treasury Secretary Timothy Geithner urged Congress not to let any more time pass without dealing with problems in the financial regulatory system.

Secretary TIMOTHY GEITHNER (Department of Treasury): We can't let the momentum for reform fade as the memory of the crisis recedes.

CORNISH: The most vital of those reforms, said Geithner, are the proposed consumer watchdog agency and a plan to safely wind down financial institutions considered too big to fail. The latter was very much on the mind of House Financial Services Chairman Barney Frank of Massachusetts. Frank says he's determined to create mechanisms for shutting down failed non-bank institutions like insurance giant AIG.

Senator BARNEY FRANK (Democrat, Massachusetts; Chairman, House Financial Services): There will be death panels enacted by this Congress, but they will be for non-bank financial institutions that will not be considered too big to die.

CORNISH: But today, lawmakers focused on the consumer financial protection agency. The proposed agency would write and enforce rules over all areas of consumer credit from debit cards to mortgages to Pay Pal. Republicans said it goes too far. In theory, it could cover any kind of consumer credit: restaurant bar tabs, box store layaways, said Jeb Hensarling of Texas.

Representative JEB HENSARLING (Republican, Texas): Applebees, rental car companies, Avis, Budget…

Sec. GEITHNER: Congressman, I know - I understand what you're doing. It's a reasonable proposition, the approach you're trying to take, okay? But let's just do the basic imperative. If you allow institutions that are essentially doing what banks do to compete with banks with no adult supervision, no constraints, are free to engage in unfair defense practices, then you will recreate again what this country went through.

Rep. HENSARLING: Do CPAs compete with banks?

CORNISH: But Chairman Barney Frank is taking concerns like Hensarling's into account. In a memo he sent to the committee last night, the chairman outlined a draft bill that would avoid ensnaring random retailers and only cover financial services companies. Frank is also dropping a provision that require banks and others to provide so-called vanilla versions of whatever they offer.

For example, if a company had a rewards credit card with fees, it would have to offer customers the regular no fee cards so they could compare, the same for mortgages and so on. Frank said that didn't really make sense for the new agency.

Sen. FRANK: The agency should prevent bad things. I don't think it's the role of the government to try and stimulate good things. That doesn't work very well.

CORNISH: And at the hearing Geithner agreed to scaling back those provisions.

Sec. GEITHNER: So as I said earlier, I think the Chairman's proposals that I've just had a chance to read very briefly are I think a pragmatic helpful way to make sure that you have a better balance of choice for protection.

CORNISH: Geithner fended off arguments that the new agency would overlap with other regulators like the Federal Reserve and the FDIC. Conservative Democrats have lobbied for a council of existing regulators instead of the new agency, but Geithner would not budge.

Sec. GEITHNER: Just let me say it starkly, did that system work? How well a job did it do? How did that work out for the country? Our responsibility, your responsibility is to figure out what's right for the country.

CORNISH: This was the first of an aggressive round of hearings that the panel has undertaken in an effort to get legislation passed this year. The committee will also take on proposals dealing with executive pay and shoring up bank reserves.

Audie Cornish, NPR News, the Capitol.

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