Supporters of financial reform are, as expected, panning Sen. Chris Dodd’s legislation for submerging a proposed Consumer Financial Protection Agency (CFPA) within the Federal Reserve.
But there also seems to be a sense that that can be changed before the bill becomes law.
The chairman of the Senate Banking Committee, Dodd unveiled his reform legislation Monday, after talks with Republicans broke down.
The Connecticut Democrat, who is retiring from Congress this year, included a provision as called for by President Obama and other Democrats, to create a new federal agency to protect consumers from abusive practices by the financial industry.
But unlike the reform package approved by the House in December, the agency would not be independent, but rather housed within the Federal Reserve.
“In particular, placing the CFPA at the Federal Reserve and giving existing financial regulators veto power undermines the goal of protecting consumers. This proposal gives the appearance of providing consumer protection, while leaving the real power in the hands of the bank regulatory agencies that failed to protect American consumers because they were too busy listening to Wall Street,” says John Taylor, president and CEO of the National Community Reinvestment Coalition.
No less than Dodd’s counterpart on the other side of the Capitol, House Financial Services Committee Chairman Barney Frank (D-Mass.), made it clear that making the CFPA part of the Federal Reserve will not suffice.
“I do not support housing the Consumer Financial Protection Agency in the Federal Reserve,” Frank says. “I continue to vigorously support the House-passed bill that establishes an independent agency with strong rule-writing authority and enforcement powers to implement consumer protections.”
Frank, however, stopped short of opposing the Senate bill outright after Dodd unveiled it, saying instead that the Dodd legislation would “form a very solid basis for a House-Senate conference, to produce the tough regulatory reform that President Obama has rightly asked for.”
“There are some differences between the House-passed bill and Senator Dodd’s version, but they are more alike than they are different,” Frank says. “I believe that we will be able to work constructively together to meet the public need for a tough, comprehensive bill.”
Dodd’s Senate colleague, Sen. Sherrod Brown (D-Ohio), also made it clear he thinks it is wrong to put the CFPA within the Federal Reserve. But, like Frank, Brown draws no lines in the sand – in what seems to be another tacit acknowledgment that arrangement is not a sticking point.
“It is clear we need an independent consumer protection agency with robust authority to prevent shady practices,” the freshman Brown says. “We need to prevent future taxpayer bailouts by ensuring one bank cannot trigger the collapse of our financial system. We need to fix our credit rating agencies — which fell asleep on the job and let Wall Street peddle junk investments. And we need to get tough on banks that use risky financial instruments that jeopardize our financial system. These financial ‘weapons of mass destruction’ should be treated as such.
“Special interests will fight tooth and nail against real financial reform. If they win, middle class taxpayers lose,” he adds.
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.