Consumer Protection Agency Contentious Issue

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Congressional efforts to overhaul the rules for Wall Street are on the home stretch. Members of the House and Senate will meet over the next few weeks to work out the differences between their two bills. And while banks are the focus of the legislation, competing provisions on consumers are some of the most contentious.

RENEE MONTAGNE, host:

Congressional efforts to overhaul the rules for Wall Street appear to be in the home stretch. House and Senate members are meeting over the next few weeks to work out the differences between their two bills. Those bills focus mostly on banks, but also include protections for consumers, and those protections are contentious.

In the coming days we're going to be looking at key parts of the bills. NPR's Audie Cornish begins with this report.

AUDIE CORNISH: Democrats say the proposed Consumer Financial Protection Agency would do for loans what the Consumer Product Safety Commission does now for toasters; that is, be on the lookout for the ones with problems and issue recalls on the ones that could eventually burn the entire financial system's house down. That would have helped in the case of the subprime mortgage meltdown, according to Raj Date, a former investment banker and head of the Cambridge Winter Center.

Mr. RAJ DATE (Cambridge Winter Center): An agency or a bureau that was focused specifically on consumer protections very likely would have had more stringent restrictions on the marketing of nontraditional mortgage products. The fact of the matter is that nontraditional prime mortgage products really fueled the housing bubble.

CORNISH: The financial overhaul bills in both the House and the Senate include such a regulator. Both bills include provisions to change the pay incentives for lenders, basically requiring them to approve mortgages only for people who show they can repay them. The new regulator would write and enforce rules for mortgages, credit cards, and maybe car loans. I say maybe because the House bill prevents the agency from overseeing auto dealers, and senators voted to instruct their conference members to push for the same. Senator Sam Brownback of Kansas led the effort.

Senator SAM BROWNBACK (Republican, Kansas): And instead of putting an additional burden on dealerships that have already lost lots of jobs, we're saying no, let's recede to the House position on this.

CORNISH: The non-binding vote was 60 to 30, making it clear there is support for leaving the auto dealers out, despite opposition from the White House. House financial services chairman Barney Frank.

Representative BARNEY FRANK (Democrat, Massachusetts): The automobile carve-out has won, unfortunately.

CORNISH: The Massachusetts Democrat will chair the House/Senate conference. Frank says that when it comes to consumer provisions, the bill is generally in good shape.

Rep. FRANK: We already have a much stronger and much more independent agency than most people thought we were going to be able to get, and we're going to try to protect that to the maximum extent.

CORNISH: Consumer advocates like Ed Mierzwinski agree. He works with U.S.PIRG, the federation of state public interest research groups.

Mr. ED MIERZWINSKI (Federal Consumer Program Director, U.S. PIRG): These are some of the things we're going to be looking at, preserving the independence of the agency, preserving the funding of the agency, and making sure that it has strong enough enforcement powers to do its job.

CORNISH: Mierzwinski says one provision his group will be fighting to drop would let small businesses weigh in on new consumer rules before the public gets a chance. Another would give the proposed council of banking regulators, the so-called financial stability oversight council, some say in rules made by the consumer agency.

Mr. DATE: This probably is a mistake.

CORNISH: Again, analyst Raj Date. Date argues that these are the same regulators who dropped the ball on consumer issues leading up to the crisis.

Mr. DATE: If it had existed then, had tried to regulate these exotic nontraditional mortgages, what very likely would have happened is this nine-member financial stability oversight council would have vetoed that protection effort during the course of the credit bubble.

CORNISH: But David Hirschmann of the U.S. Chamber of Commerce says his group will be defending those checks on the proposed consumer agency's reach.

Mr. DAVID HIRSCHMANN (U.S. Chamber of Commerce): Part of the problem we had with the current regulatory system is not a shortage of regulators. It's that regulators don't work well together.

CORNISH: Hirschman says if there are no checks on the consumer agency, it will end up more unaccountable than independent.

Mr. HIRSCHMANN: While it wasn't our preference to set up a second regulator, we believe that if you're going to go that route, that coordinating with existing regulators, having checks and balances on the power, and not regulating Main Street businesses are legitimate requests.

Both sides in this debate will have another few weeks to make their case to lawmakers behind closed doors. The conference to reconcile the two bills is set to begin in the middle of the month and it's expected to be televised.

Audie Cornish, NPR News, the Capitol.

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