WASHINGTON — The banking industry is officially gearing up for full-scale combat against the Obama administration's plan to create a new consumer protection agency, but privately many lobbyists concede they may have already lost the fight.
The Treasury Department on Tuesday submitted to lawmakers a 152-page legislative proposal containing new details about how the agency would function, including its corporate governance, funding and scope of authority. House Financial Services Committee Chairman Barney Frank immediately hailed the language, and said it would serve as the basis for a bill he planned to pass out of his panel by the end of the month.
Officials at the administration appeared confident it had the political will to enact the bill and said a Supreme Court decision this week giving states limited ability to enforce certain laws against national banks has strengthened their hand.
"The Supreme Court's opinion yesterday is directionally consistent with the approach that we lay out in the legislation," Michael Barr, Treasury assistant secretary for financial institutions, said at a news conference. "It is harder for those that think the current approach, which has been rather dismissive of states, should continue. It's harder for that position to be maintained in the wake of the Supreme Court's judgment."
Observers and several lobbyists agreed the high court decision damaged the industry's ability to fight the new agency. Many industry representatives said that if they could not win outright, they would focus on changing details of the new agency to make it more palatable.
"There's a political wind to create this agency," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. "Our goal will be to kill it, or make it the least-worst way to do the wrong thing."
Though the banking industry still has a powerful lobby — it helped defeat a bill earlier this year to allow judges to rework mortgages in bankruptcy — it is weakest on consumer protection issues, observers said. Though the consumer protection agency does not yet have the support of some moderate Democrats, most observers expect that to change as they become more focused on the issue.
"The industry is in the wrong place if they sit back and just say no," said John Irons, research and policy director at the Economic Policy Institute.
"They have to be constructive and help craft something. I think the general thrust of having a single consumer protection agency is going to stay. I think it's a case where the agency is going to have to be given some authority."
Barr said the administration was not concerned about the industry's opposition.
"I don't think it's a surprise that big banks and institutions that benefited from the status quo want to keep it that way," he said. "It's unacceptable to us. It's a very hard argument for a big bank to make that the status quo on consumer protection was enough, that consumers were protected enough during the financial crisis. I think that's a horrible position for them to be in. I don't envy them for that position to have to argue."
Still, the bill has a long process before enactment.
Though Frank likely has the necessary support to pass a tough bill out of the House this year, the Senate remains more closely divided and is moving at a slower pace. Some moderates, including Sen. Mark Warner, D-Va., a member of the Banking Committee, have also expressed resistance to the idea.
But many said the idea is likely to pick up political support, and would pass next year if this year proves too difficult.
"Some version of this is inevitable," Irons said.
If anything, the legislative language made the industry dislike the plan even more.
The new agency would be funded largely by fees or assessments from banks and all other institutions it supervises, which would include all mortgage lenders and brokers, among others. Administration officials said extra funding could also come from an appropriation from Congress. The exact details of how fees would be charged have been left to the new agency itself, the Consumer Financial Protection Agency.
Industry lobbyists were concerned that if left unchanged, banks could face a potentially crippling tax on top of existing exam fees from federal regulators.
The agency's purview is wide: it would be able to write, supervise and enforce consumer protection regulations on all financial products, including mortgages, credit and stored-value cards and overdraft programs. Securities and insurance products — except certain credit insurance, mortgage insurance and title insurance — would largely be excluded, however.
The bill also would allow the agency to write compensation rules for an employee, agent or contractor of a company that deals with the consumers, such as mortgage brokers or bank loan officers. The provision would allow the agency to write rules governing the compensation structure but prohibit it from setting a specific ceiling on compensation.
The agency would be overseen by a five-member board that would include the director of the proposed National Bank Supervisor (the successor to the Office of the Comptroller of the Currency). It would be required to report regularly to Congress on risks to consumers and the success of new products.
The bill explicitly directs the new agency to write new disclosure standards, including harmonizing mortgage disclosures under the Real Estate and Settlement Procedures Act and the Truth-in-Lending Act.
As expected, the legislative language would eliminate preemption of state consumer protection laws.
It would allow the new agency to write rules that would be a minimum federal standard that individual states could exceed. State regulators could enforce not only their own laws but federal statutes as well against national and state banks.
While the industry recoils at the very concept of the bill, arguing that consumer protection should be left to banking regulators, it is likely to focus much of its ire on the preemption provisions.
"There will be a lot of fire directed particularly at the preemption part," said Doug Elliott, a fellow at the Brookings Institution.
Many said the industry's ability to combat the preemption provision was undercut by the Supreme Court decision on Monday, because it for the first time said states could have at least some oversight of national banks.
"I think we're seeing a recognition of the limitations of a purely federal system," said John Ryan, executive vice president of the Conference of State Bank Supervisors.
V. Gerard Comizio, a partner at the corporate department at Paul, Hastings, Janofsky & Walker LLP, said that the high court decision "makes it easier for the administration to argue this is not heading off in a new direction but rather is consistent with the Supreme Court's view."
