The House yesterday voted overwhelmingly to keep the Commodity Futures Trading Commission alive, but rejected the agency's efforts to outlaw one kind of commodity investment that has been plagued with fraud.
The bill was approved 401 to 7 after lawmakers reversed themselves on the most controversial commodity regulation issue -- the CFTC's attempt to put out of business the only two firms that sell commodity leverage contracts. The House first voted to uphold the ban on leverage contracts by a vote of 219 to 193, and later reversed the action by a vote of 218 to 192.
Leverage contracts are the only commodities that are not required by law to be traded on a government-regulated exchange. The contracts allow investors to make a small down payment on a purchase of precious metals in hopes of profiting when prices go up.
The CFTC says leverage contracts are the number one source of consumer complaints about commodity investments. Investors complain about high-pressure sales tactics and say the interest, fees and commissions charged by leverage sellers are so high that investors rarely make profits.
In the last few years, two of the four firms in the business have been shut down by the agency. The remaining two firms have persuaded Congress to protect them from extinction, using campaign contributions to House Agriculture Committee members to help their case.
Rep. Dan Glickman (D-Kan.) had lost his attempt to ban leverage contracts in the Agriculture Committee. He took his battle to the House floor, charging that leverage transactions not traded on an exchange are almost all fraudulent.
As approved by the House, the measure would restrict leverage contracts to gold, silver and platinum. Firms would have to cease trading leverage contracts on foreign currencies and copper.