consumer agency essential in regulatory overhaul

Businessweek | The Consumer Financial Protection Agency sought by President Barack Obama is an essential part of the regulatory overhaul being negotiated in Congress, House Financial Services Committee Chairman Barney Frank said.

The standalone agency, opposed by Republicans and banks including JPMorgan Chase & Co., is “very important to us” because existing regulators view consumer protection “as a second thought,” Frank said yesterday in a Bloomberg Television interview.

“The agency that has by far the most power assigned to it to protect consumers is the Federal Reserve, and they don’t do it very well,” said Frank, a Massachusetts Democrat who put the consumer agency in legislation the House approved in December.

Obama’s proposed watchdog to guard against abuses in mortgage and credit-card lending is the biggest sticking point in Senate negotiations over new rules to govern U.S. financial firms. Republicans say the standalone agency would create a new bureaucracy; Democrats say it’s needed to prohibit business practices that contributed to the financial crisis.

Congress is drafting the legislation to strengthen oversight of Wall Street after largely unregulated bets tied to the subprime mortgage market led to the failures of Lehman Brothers Holdings Inc. and Bear Stearns Cos. and $182.3 billion in U.S. bailouts for American International Group Inc.

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, will unveil his version of the bill next week, his spokeswoman Kirstin Brost said yesterday in an e-mail. His committee will begin considering amendments to the proposal in the first week of March, she said.

Alabama Senator Richard Shelby, the Banking Committee’s top Republican, is developing a competing bill that will likely put consumer protection authority in a new bank regulator instead of the standalone agency sought by Dodd and Obama, two Shelby aides said on Feb. 17. Shelby’s plan would shield taxpayers from the costs of unwinding failed systemically important financial firms, said the aides, who requested anonymity because the talks are private.