By Brady Dennis and Binyamin Appelbaum
Washington Post Staff Writers
Saturday, October 10, 2009
President Obama on Friday scolded business groups that have fought his plan to create a new federal agency to oversee mortgages, credit cards and other consumer financial products, casting the debate as a battle between his administration and Wall Street.
"They're doing what they always do -- descending on Congress and using every bit of influence they have to maintain a status quo that has maximized their profits at the expense of American consumers," Obama told an East Room audience of Cabinet members, key lawmakers and consumer advocates.
Both the speech and the setting represented an escalation in the administration's push to expand the government's role in the relationship between ordinary Americans and the powerful banks that control their access to credit.
Until now, Obama has pressed for a comprehensive package of financial reforms. But on Friday he used his bully pulpit to push for a single, controversial piece of that package -- creating a new Consumer Financial Protection Agency. His remarks come at a critical moment, as House Democratic leaders try to overcome the doubts of some moderates about the agency. The House Financial Services Committee plans to edit and vote on the legislation beginning as early as next week.
The president is hoping to hold Democrats together. But if the proposal is defeated, it would represent a rebuke at a time when the White House is struggling to hold together other ambitious efforts to reform health care and climate policy.
The proposed agency has become the most divisive, partisan element of the administration's wide-ranging plan to overhaul the nation's financial regulatory system. Republicans on congressional committees considering regulatory reform have almost uniformly opposed it. Banks and other financial firms, along with armies of lobbyists, have flooded Capitol Hill carrying the message that the new agency would add an unnecessary layer of government regulation, increase costs, stifle financial innovation and ultimately curtail choices for consumers.
"Since they're worried they may not be able to kill this agency, they're trying their hardest to weaken it," Obama said Friday, "by asking for exemptions from this agency's rules and enforcement; by fighting to keep every gap and loophole they can find."
He singled out the U.S. Chamber of Commerce and its multimillion-dollar ad campaign that claims nearly every business that extends credit, including local butchers, would be subject to oversight by the new consumer agency. The president called that assertion "completely false," adding derisively, "We've made clear that only businesses that offer financial services would be affected by this agency. I don't know how many of your butchers are offering financial services."
In a statement, the chamber said that it agreed with the president that financial consumers need more effective protection.
"Our disagreement is about the best approach to achieve this goal," the statement said. "We disagree that a massive new federal agency with unprecedented powers over vast segments of the business community will be good for consumers."
Obama also disputed Friday that the new agency would restrict consumer choice or limit meaningful innovation.
"Nothing could be further from the truth," he said, arguing that "in a financial system that's never been more complicated, it has never been more important to have a watchdog function like the one we've proposed."
Obama's words carried a heavy dose of populism, similar in tone to his angry rebuke of Wall Street over big bonuses earlier this spring.
"Americans cannot afford high-priced lobbyists to argue their case," Obama said. "They are counting on us to be their advocate; to be their voice; to restore a sense of responsibility from Wall Street to Washington."
Still, the lobbyists that the president beat up on Friday have indeed made inroads in weakening the administration's initial proposals.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and an ardent supporter of the new agency, last month scaled back the scope and reach of his legislation in an effort to forge consensus among lawmakers. Frank said he would exempt certain nonfinancial businesses from oversight by the new agency, including telephone and cable companies, auto dealers, lawyers, providers of certain retirement and pension plans, accountants and real estate brokers. He also axed plans that would have required financial institutions to offer certain "plain vanilla" products.
Those concessions have done little to ease opposition to the agency as a whole. The president's proposal would strip power from the four federal agencies that regulate banks, which are responsible both for keeping banks healthy and for protecting customers. Proponents argue that is important because existing regulators will always prioritize banks over borrowers.
Opponents have maintained that a single agency can more efficiently oversee consumer protection and safety and soundness. They also oppose a provision that would allow states to exceed federal guidelines for consumer protection, an approach financial firms say could lead to burdensome and conflicting regulation.
The new consumer agency also faces an uncertain fate in the Senate Banking Committee, where some moderate Democrats have expressed reservations about the plan.