WASHINGTON — The House Financial Services Committee voted 39 to 29 on Thursday to approve a bill that would create a 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.
Committee Chairman Barney Frank called the bill's passage "a major breakthrough."
"Given the process and what we were up against I think this is a very significant event and I will predict it will only get better from our standpoint going forward," the Massachusetts Democrat said in a press conference with consumer advocates. "The committee process is often the hardest to deal with. There are a couple points where I believe we can improve it but … I am pleased that the list is frankly as short as it is."
President Obama also praised the bill's passage.
"This bill has now passed a major hurdle and this step sends an important signal to the American people that we will not stand by and allow big financial firms and their lobbyists to mobilize against change," he said in a statement.
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 a 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. 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 prefile 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 of the administration's regulatory reform plan. It was originally slated for a committee vote in July but was delayed because of overwhelming opposition by business and banking groups.
The final vote in the Financial Services Committee Thursday concluded five days of fierce partisan feuding over the bill. One Republican, Rep. Mike Castle of Delaware who is running for the Senate, voted for the bill. Two Democrats — Reps. Travis Childers of Mississippi and Walt Minnick of Idaho — voted against it.
Frank said he plans to hold votes on a package of investor protection and credit rating agency reforms next week and then take up one of the most controversial pieces of regulatory reform the following week — legislation to create a systemic risk regulator and to expand resolution powers to bank holding companies and other systemically important firms.
The Treasury Department is expected to introduce a new version of legislative language on resolution powers in advance of a hearing with regulators on the revamped proposal next week.
"I think the resolution authority is probably the hardest to do," Frank said. "This is the second hardest."