WASHINGTON — After several hours delay on Wednesday, House leaders conceded to pressure by moderate Democrat Rep. Melissa Bean, of Illinois, to broaden proposed powers of the Office of the Comptroller of the Currency to preempt state consumer protection laws for national banks.

The move helped to break a log jam delaying debate on a massive bill to reform the financial regulatory system.

In a procedural step forward, the House approved a rule 253 to 177 late Wednesday to begin debate on the bill. Debate is expected to continue until late in the night, resuming on Thursday.

The deal would address one of the core objections of the banking industry, much of which has been opposed to the reform package.

Under the deal reached between House Financial Services Committee Chairman Barney Frank and Bean, the OCC could preempt a state consumer protection law by simply writing a letter or issuing a ruling. It would reaffirm the deference given to the OCC’s rulings by the courts.

It would also allow the agency to preempt all equivalent state standards at once. For example, if the OCC were to preempt an Indiana credit card disclosure law, it could apply the same standard to other credit card disclosure laws with similar language.

The bill would also lower the threshold required for the OCC to preempt state standards by saying that it can override any law that "prevents, significantly interferes with, or materially interferes" the business of banking.

Under the original bill sponsored by Frank, the OCC would have only been able to preempt state consumer laws on a case by case basis when it interfered with the business of banking. The standard was meant to repeal the agency's sweeping 2004 preemption rules, returning it to the so-called "Barnett standard" established by the 1996 Supreme Court case of Barnett V. Nelson.

But the language was a source of controversy as banking industry representatives said it did not accurately reflect the Barnett standard and did not give the OCC's preemption rulings deference by state and federal courts. They said the bill would have made it substantially more difficult for national banks to operate across state lines.

On Wednesday, frustration amongst moderate Democrats who make up the New Democrat and Blue Dog coalitions came to a head over concern that amendments they proposed to moderate the bill would be blocked from consideration during debate on the floor.

Sources said Bean negotiated with Treasury Deputy Secretary Neal Wolin and House leaders, minus one of the original provision’s architects, Rep. Mel Watt, D-N.C., who told the Rules Committee earlier in the evening his name might not be on the final amendment and eventually walked away from the discussions.

Bean succeeded in convincing Frank to adopt the bulk of her proposal to broaden preemption and roll it into the Massachusetts Democrat’s manager’s amendment. By incorporating it as part of the base text without requiring a separate vote solely on that provision, the move virtually guarantees that her preemption language will stick.

During the negotiations, moderate Democrats also succeeded in convincing House leaders to consider other amendments during debate, including a measure by Rep. Walt Minnick, D-Idaho, that would substitute the creation of a new consumer agency with a proposal that would let a council of existing federal regulators jointly write new safety and soundness standards and consumer protections.

The House will also consider an amendment by a group of moderates that would alter the
definition of a major swap participant in derivatives legislation to better protect end-users.

The new manager’s amendment from Frank will also take steps to address another big concern of bankers and modify a provision from Reps. Brad Miller, D-N.C. and Dennis Moore, D-Kans., that would have required secured creditors to take a 20% haircut in resolutions of firms that pose a risk to the economy.

Under revised language to be included in Frank's manager's amendment, the haircut would be reduced to 10% and apply only to short-term lending of 30 days or less. It would also explicitly exempt any debt secured by government entities including the Federal Home Loan banks, the government-sponsored enterprises, the Federal Housing Administration and Treasury securities.

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