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House steps closer to passing financial regulation overhaul
Federal consumer protection laws could preempt those of state

By Brady Dennis
Washington Post Staff Writer
Friday, December 11, 2009

House lawmakers on Thursday night inched closer to approving a sweeping overhaul of the nation's financial regulatory system, adopting last-minute changes that scaled back parts of the legislation while extending its reach to help struggling homeowners.

Debate reached deep into the evening as legislators considered 36 proposed amendments to the Wall Street Reform and Consumer Protection Act in advance of a final vote on the package. If enacted, the 1,279-page bill would mark the largest revamp to the country's financial regulatory regime since the Great Depression. It would create a new agency dedicated to consumer protection, establish a council of regulators to police the financial landscape for systemic risks, install oversight of the vast derivatives market and give the government power to wind down large, troubled firms whose collapse could endanger the entire financial system.

One key change approved Thursday night was the addition of language that would permit federal laws governing consumer protection to continue to preempt those set by individual states. The bill that arrived on the House floor would have allowed states in most cases to impose tougher restrictions, using federal standards merely as a floor rather than a ceiling. The financial industry has lobbied relentlessly against that structure, saying it would saddle national banks with layers of burdensome bureaucracy and cause confusion among consumers.

Rep. Melissa Bean (D-Ill.) and other moderate and business-friendly Democrats threatened earlier this week to stall the bill if Bean's preemption amendment did not get a hearing on the House floor. After a flurry of meetings between top House Democrats and Treasury Department officials, the groups reached a deal: A modified form of Bean's amendment could proceed. In addition, it would be folded into a broader amendment put forward by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

"It's clearly a victory for the banks," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

"Overall, it's a significant step in the right direction," said Scott Talbott of the Financial Services Roundtable, a group that represents the largest financial firms. "However, more work needs to be done to provide certainty to consumers and banks about which laws apply and which products are available."

Rep. Melvin Watt (D-N.C.) said Thursday evening that it was good news that the compromise over preemption had managed to not satisfy both consumer advocates and the financial industry. "They are equally unhappy, so I think we have found the right balance," he said.

Frank's amendment passed just after 9 p.m. Thursday by a vote of 240 to 182. It included a number of other provisions, among them a measure to steer $3 billion from the government's Troubled Assets Relief Program to mortgage relief for jobless Americans, as well as allocating $1 billion more for grants to state and local governments to purchase foreclosed properties and put them to better use.

A final vote on the reform package was expected Friday, and all signs suggested that the bill will succeed. Still, at least one lingering amendment posed a realistic challenge to a key part of the current bill. A measure proposed by Rep. Walt Minnick (D-Idaho) would eliminate the new independent Consumer Financial Protection Agency supported by Frank and the Obama administration and replace it with a council of existing regulators to oversee consumer protection.

The new agency has served as a lightning rod of criticism from the business and financial industries, which argue that it would stifle financial innovation, curtail consumer choice and create an unnecessary new federal bureaucracy. Republicans have been unified in their opposition to the proposed new agency, not to mention other elements of the legislation. Therefore, Frank would need to round up as many Democratic votes as possible to block Minnick's amendment and keep the bill intact.

If the far-reaching bill passes the House, it would mark a significant victory for the Obama administration, which has listed financial reform alongside health care and climate change as its top priorities. But legislative hurdles remain in the Senate, where members of the banking committee recently began a debate over similar legislation that will probably carry into next year.

Staff writer Dan Eggen contributed to this report.

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