Sen. Dodd may drop push for consumer financial protection agency

By Brady Dennis and Binyamin Appelbaum
Washington Post Staff Writer
Saturday, January 16, 2010; A11

Senate banking committee Chairman Sen. Christopher J. Dodd (D-Conn.) has discussed jettisoning plans for a standalone Consumer Financial Protection Agency, as part of an effort to secure bipartisan support for legislation to reform financial regulation, said people familiar with the matter.

One possibility raised during recent talks between Dodd's staff and Republican counterparts would be to assign new consumer protection powers to another agency. Such a compromise might offer an opportunity for Dodd to preserve the goal of expanding safeguards while appeasing Republicans who have chafed at any suggestion of a new agency.

"If there's a bipartisan deal, that's likely how it's going to come out," said one Democratic aide, who was not authorized to speak on the record about the discussions.

President Obama proposed last June the creation of an agency to protect consumers against abuses in mortgages, credit cards and other forms of lending.

People on both sides have said the negotiations remain in the early stages. Though Dodd and the committee's ranking Republican, Sen. Richard C. Shelby (R-Ala.), said in December that they hoped to reach a deal on a broader package of financial reforms by the time the Senate reconvened in January, no final agreement is in sight, the sources said.

If Dodd abandoned a standalone consumer agency, this would mark a departure from the Obama administration's blueprint. He already has proposed stripping the Federal Reserve of all regulatory responsibilities, rejecting an administration proposal to expand the Fed's role. Such a concession on consumer protection also would differ from a bill passed recently by the House, which included the creation of a consumer regulator.

But Dodd, who announced this month he would not seek re-election in the fall, is eager to complete a bill and leave a lasting stamp on a landmark piece of financial regulation. A compromise on consumer protection might increase the chances of passing a sweeping reform package -- which includes measures to oversee financial derivatives, instill safeguards against systemic risks and streamline banking regulation -- before the election campaign heats up ahead of congressional polls in November.

It's not clear how dropping the idea of a separate agency would eliminate the differences between the two sides. The fundamental goal of consumer advocates is to separate consumer protection from banking regulation, giving consumer regulators autonomy to write and enforce laws even over the objection of banking regulators. The industry, conversely, wants banking regulators to retain both responsibilities. If the Senate takes a different approach, both sides said the details would determine whether they can live with the compromise.

Neither Dodd's nor Shelby's staffs would comment on the negotiations, saying only that no resolution had been reached.

Banking industry representatives, who have long argued that a separate agency would create an unnecessary bureaucracy and stifle financial innovation, said that they were pleased to see the Senate reconsidering the idea of a standalone new regulator.

"What's important is that we have reasonable reform that's in the best interest of the banking industry and the customer," said Richard Hunt, president of the Consumer Bankers Association. "That can be achieved by taking the current regulatory agencies and enhancing their consumer protection divisions."

Meanwhile, consumer advocates reacted by insisting that Dodd hold firm on the push for a new agency.

"This is the litmus test about whether Congress is serious in their efforts to overall financial regulation," said Travis Plunkett, legislative director for the Consumer Federation of America. "If they can't take consumer protection out of the hands of regulators who failed" at that task before, he added, "then they're not really serious about doing things differently than in the past."

Heather Booth, executive director of Americans for Financial Reform, a coalition of nearly 200 consumer, labor and civil rights organizations, on Friday urged Dodd "not to cave to the big banks and their armies of lobbyists."

White House and Treasury Department officials have continued to advocate for the a consumer protection agency. Last month, the House passed its own reform bill that left the independent consumer agency intact, but just barely. An amendment from Rep. Walt Minnick (D-Idaho) to eliminate the proposed agency and replace it with a council of existing regulators narrowly failed but garnered more than 30 votes from moderate Democrats.

In November, Dodd put forward an ambitious, 1,136-page discussion draft of financial reform legislation, which included plans for a consumer protection agency largely in line with the administration's original proposal. He said at the time that his bill would "stop abusive practices by creating an independent consumer financial protection agency with one mission, and that is standing up for consumers."

Bipartisan talks soon broke down, however, over Shelby's opposition to creating the new agency. They resumed toward the end of the year, and the two men put out a joint statement Dec. 24 that sounded a hopeful note, saying that "we are committed to working together on legislation to create a sound regulatory structure."

© 2010 The Washington Post Company