The House Financial Services Committee voted 39 to 29 on Thursday to approve a bill that would create a new consumer financial protection agency, clearing the first hurdle to enacting a key priority in the Obama administration's regulatory reform plan.

The bill would strip the federal banking and thrift agencies of their ability to write new consumer protection laws and give oversight of several existing statutes such as the Truth in Lending Act and the Home Mortgage Disclosure Act to the new agency. The legislation would restrict banking regulators' ability to enforce consumer protections and give states more latitude to write and enforce their own standards.

While the industry largely remains opposed, it did win several concessions.

The committee approved an amendment from Reps. Brad Miller, D-N.C., and Dennis Moore, D-Kan., on voice vote last week that would let prudential regulators keep primary supervision, examination and enforcement of community banks with $10 billion or less of assets. Such institutions would still be subject to rules written by the consumer agency, which would also be given backstop enforcement authority.

National banks and thrifts also won a partial protection of federal preemption of state laws and rules.

The committee approved an amendment from Reps. Mel Watt, D-N.C., and Moore that attempts to find middle ground on the issue by letting the Office of the Comptroller of the Currency preempt state standards on a case-by-case basis when they substantially interfere with the business of national banking. The banking industry is expected to keep pushing to broaden that standard, saying it does not go far enough to guarantee a smooth continuation of their operations. Committe Chairman Barney Frank and Watt vowed to keep working with all parties involved with the goal of restoring preemption to the levels before the OCC issued its broad preemption rules in 2004.

Several other amendments considered a threat to the industry were dropped, including measures to give the new consumer agency the power to set usury cap limits; force banks to pre-file products; or conduct financial autopsies and ban any products deemed to cause bankruptcies or foreclosures.

The consumer agency proposal is considered one of the most controversial elements to the administration's regulatory reform plan. It was originally slated for a committee vote in July but was delayed due to overwhelming opposition by business and banking groups.

The final vote in Financial Services Thursday concluded five days of fierce partisan feuding over the bill where Republicans fought to block, gut or otherwise weaken the bill. The vote came with the support of one Republican, Rep. Mike Castle of Delaware, who is running for the Senate. The bill also lost two Democrats — Reps. Travis Childers of Mississippi and Walt Minnick of Idaho, who both voted against it.

Lawmakers from both sides of the aisle succeeded in passing explicit carve-outs for several individual retail and other groups including auto dealers, title and mortgage insurers and manufactured home agents or brokers.

The House Energy and Commerce Committee is expected to weigh in on the bill next week since parts of it would redirect powers of the Federal Trade Commission, which falls within that committee's jurisdiction, to the new consumer agency.

Frank has said he hopes to roll the consumer protection agency piece into a comprehensive regulatory reform bill and bring it for a vote in the full House next month.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.