A wide-ranging Wall Street reform bill that passed a key Senate committee Monday includes a consumer financial protection bureau under the Federal Reserve.
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A proposal to create a consumer financial protection watchdog agency that would oversee credit cards, car loans and other financial products moved a step closer to reality Monday.
The U.S. Senate Banking Committee voted 13 to 10 passing the Restoring American Financial Stability Act. The measure includes sweeping reforms aimed at curbing abuses that led up to the 2008 Wall Street meltdown.
One of the most controversial aspects of the bill — a plan to create an independent consumer watchdog agency — now calls for creating an agency that is housed at the Federal Reserve, the current lead bank regulatory agency. The new watchdog — dubbed the Consumer Financial Protection Bureau — would have “the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices,” according to a summary of the bill released by Banking Committee Chairman Sen. Christopher Dodd.
Originally proposed in 2009 by President Obama, the consumer financial protection agency plan has undergone several revisions. Initially it was to be a standalone agency with broad powers to fine violators and propose laws to curb emerging aqabuses and practices harmful to consumers’ pocketbooks. In the latest proposal, the agency will have a director appointed by the president and confirmed by the Senate. However, its budget would come through the Fed.
Consumer groups applauded Dodd’s committee for passing the measure, but criticized the lack of true independence for the watchdog agency.
“Existing bank regulators utterly failed to protect consumers from abusive lending practices because they were not independent of the lenders they regulated and because they subordinated consumer protection concerns to a dangerously shortsighted focus on the near-term profitability of these institutions,” according to a statement issued by Americans for Financial Reform, a coalition of dozens of consumer groups, including Consumers Union.
“In fact, the current regulatory system places consumer protection in banking agencies, for which consumer protection is not the primary mission, focus, or expertise,” the statement said. “Only the establishment of a robust entity, functionally independent in all respects, will protect America’s families from unfair or predatory credit and financial products that can ultimately have a destabilizing effect on not only those families, but the economy as a whole. It is simply not “reform” to leave the final word over the rules of the game to the same regulators who ignored consumer problems until they grew so large that they sparked the financial meltdown. That is why Americans for Financial Reform and our member organizations support the creation of a completely independent Consumer Financial Protection Agency.”
Banks oppose bill
The leading trade association for bankers quickly assailed the vote.
“[T]he bill fails to fully address several critical issues and contains provisions that will put traditional banks at an even further disadvantage to nonbanks and reduce the ability of our industry to support the economy,” the American Bankers Association said in a statement issued after the vote. “The approach to consumer protection will create conflicts between safety and soundness and consumer regulation — with the bank caught in the middle.”
The banking committee took about 21 minutes to vote on the plan and held no debate on the measure.
The bill now goes to the full Senate for debate and a vote. The U.S. House had passed its own version of a Wall Street reform bill in December 2009.
“I know that there will be spirited discussion in the days and weeks ahead, but I expect that all the members of the committee and the full Senate will understand very clearly that we are moving forward,” Dodd said in a statement released shortly after the vote.