Campaign builds to include new consumer protection agency in financial reform

Warren (Daniel Acker - Bloomberg)
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By Brady Dennis
Washington Post Staff Writer
Thursday, February 11, 2010

With a proposed overhaul of financial regulations facing stiff headwinds in the Senate, consumer advocates have redoubled their efforts to portray opponents as favoring big banks over the interests of ordinary Americans.

The latest offensive centers on the most divisive piece of the pending legislation: the proposal for a new agency to protect consumers of mortgages, credit cards and other such products from abuses by lenders. The Consumer Financial Protection Agency is a key element of the Obama administration's blueprint for financial reform and was included in a House bill that passed in December with support only from Democrats.

The financial industry, along with many Republicans, has depicted the proposed agency as unnecessary and expensive, while consumer groups call it essential to preventing the kinds of abuses that contributed to the current crisis.

Cue the latest round of conference calls, news releases and ads:

"This is a classic choice that members of Congress and the Senate have," Iowa Attorney General Tom Miller said on a call Tuesday, speaking along with several other state attorneys general in support of the new consumer agency. "Senators have to ask themselves: 'Whose side am I on? Am I on the side of the public, or am I on the side of big banks?' "

Elizabeth Warren, a Harvard law professor and architect of the proposal for the new agency, wrote a Wall Street Journal commentary this week in which she said Wall Street executives "might have had some thoughtful suggestions for how to better shape a consumer agency. Instead, they have unleashed lobbyists who are determined to do anything to kill the consumer agency."

And a television ad unveiled last week by Americans United for Change compared big bankers to "pigs at the trough."

Heather Booth, executive director of Americans for Financial Reform, said that the advocacy campaign has reached a critical moment and that more such efforts are on the way.

She and other advocates want a stand-alone agency, though it is increasingly likely that any new consumer-protection regulator would reside within an existing government body, such as the Treasury Department. But they remain adamant that the regulator must remain independent, with the power to write and enforce new rules and a dedicated source of funding. They also want individual states to be able to impose laws that go beyond federal standards, an idea that big banks have fought vehemently.

"The real test is, does it rein in the reckless behavior of the big banks?" Booth said. "And if it doesn't, it's not reform we would support."

Thus far, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, has remained committed to giving the new regulator the kind of autonomy its supporters view as vital. But to win Senate approval for sweeping financial reform legislation, he will need some support from Republicans, who have argued that the same federal agency assigned to supervise the financial health of lenders should also oversee consumer protection.

Meanwhile, the financial industry has poured months of effort and millions of dollars into advertisements, political contributions and lobbying efforts, with the goal of shaping the legislation and killing elements they say would stifle innovation and increase the cost of business.

The U.S. Chamber of Commerce, for example, has spent millions of dollars on a campaign to label the proposed agency as a massive bureaucracy and a threat to small businesses.

In addition, Republican political consultant Frank Luntz wrote a memo last month advising opponents of the pending legislation to depict it as filled with bank bailouts, lobbyist loopholes and additional layers of government bureaucracy. He concluded with a handy guide of "words to use." They include "bloated bureaucracy," "big bank bailout bill," "wasteful Washington spending" and "unintended consequences."

Dodd plans to present a version of the legislation to committee members later this month.

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