Dodd wants Democratic support for consumer-protection regulator at Fed
Tuesday, March 2, 2010
The chairman of the Senate banking committee is seeking Democratic support for a Republican proposal to house a new consumer-protection regulator inside the Federal Reserve, a compromise that could clear the way for bipartisan legislation on financial reform, according to sources familiar with the negotiations.
Embracing the proposal marks a turnaround for Sen. Christopher J. Dodd (D-Conn.), who has lambasted the Fed repeatedly over the past year for not protecting borrowers from lender abuse. It is unclear whether other Fed critics, both Democrats and Republicans, will follow suit. The Fed already is responsible for writing consumer-protection rules, but it did not prohibit some of the most abusive mortgage and credit card lending practices during the housing boom.
The proposal by Sen. Bob Corker (R-Tenn.) would place a presidential appointee inside the Fed with an independent budget and a mandate to write rules protecting consumers. Those rules, however, would be enforced by existing banking regulators.
Key issues remain, including whether the new regulator could impose rules over the objections of banking regulators. Dodd and Corker also are negotiating how broadly the rules would apply to financial institutions other than banks. The sources, who spoke on the condition of anonymity because the negotiations are in progress, cautioned that the differences had frustrated negotiators for several weeks, and that the two sides might not reach an accord.
"We do not have an agreement yet," said Kirstin Brost, a spokeswoman for Dodd. "He hopes to have a consensus bill in the coming days."
The Corker plan would require major concessions by Democrats. Dodd and others on the banking committee initially favored a proposal by President Obama to create an independent agency with the power to write and enforce consumer-protection rules. The House has passed legislation including such an agency.
Administration officials argued explicitly that Congress should strip the Fed of its consumer-protection responsibilities rather than trying to get it to improve its performance. Consumer advocates continue to argue that a clear separation is needed between banking regulation and consumer protection so that the banks' health is not given priority over customers' health.
But Dodd has been forced away from more substantial reforms by the opposition of Republicans and moderate Democrats. He previously floated the idea of placing the new regulator within the Treasury Department, where it would have been somewhat insulated from banking regulators.
Sources said he is now open to Corker's plan because he considers the location of the new regulator a secondary issue.
The Obama administration also has signaled its willingness to abandon the idea of a freestanding agency.
Treasury spokesman Andrew Williams said Monday that the administration's top priorities "are ensuring the bill includes independent appointment, an independent budget, and an independent ability to set and enforce clear rules of road to protect American families."
The basic outlines of an agreement have been in place for at least a month, sources said.
Dodd started negotiating last year with Sen. Richard C. Shelby (Ala.), the ranking Republican on the committee. Before talks broke down, the two men had agreed on nearly all of the points contained in the present proposal, except the role of the Fed.
Dodd then began talks with Corker in mid-February, and the two have advanced closer to an accord on the remaining issues, sources said.
Dodd needs an agreement with Republicans because Democrats control only 59 votes in the Senate, short of the 60 needed to avert a potential filibuster, and because of pressure from the conservative wing of his own party.
But he now faces the challenge of selling his compromise to liberal senators, some of whom have warned that they will fight for a stronger version of a consumer regulator.
Said one Democratic aide: "Democrats should go to the floor with a strong bill that attacks the root causes of the financial crisis and ensures that Wall Street can never do it again, and then dare Republicans to oppose it."