WASHINGTON — Sen. Charles Schumer announced Tuesday that he would introduce legislation this week to create a financial services regulator devoted to consumer protection.
The New York Democrat, who is working in concert with Senate Majority Whip Richard Durbin, D-Ill., said his financial products regulator would be modeled on the Food and Drug Administration.
"Consumers," Schumer said, "should have someone on their side — a regulator that will watch out for the average American, a regulator that will review financial products and services to ensure they work, without any hidden dangers or unreasonable tricks."
But the bill is likely to face an uphill battle. Though the Senate Banking Committee held a hearing Tuesday devoted exclusively to the issue of a consumer protection regulator for the financial services industry, Chairman Chris Dodd said further hearings were needed before he would support the Schumer-Durbin bill.
"This is a path we're on here," Dodd said, "and that is one idea."
Dodd has previously expressed support for a consumer protection regulator as part of a regulatory overhaul and said in his opening remarks he hoped to have reform legislation passed by yearend.
But the idea has yet to pick up Republican support. Sen. Richard Shelby, the banking committee's No. 1 GOP member, said he needs to study the idea further. "We're going to hold a lot of hearings on this," Shelby said. "We're not supporting anything right now."
Schumer's proposal appears based on an idea advocated by a Harvard law professor, Elizabeth Warren, who heads the Troubled Asset Relief Program oversight board set up by Congress. She has called for creating a Consumer Product Safety Commission that would examine the risks associated with new financial products and determine whether they are safe for the market. House Financial Services Committee Chairman Barney Frank has also supported Warren's idea.
Witnesses at Tuesday's hearing did not comment specifically on Schumer's proposal and were split on whether a separate consumer protection regulator would work.
Steve Bartlett, the president of the Financial Services Roundtable, said a new regulator would only add to the confusion of piecemeal oversight. "There are literally hundreds of regulatory agencies that are each regulating individual toenails of the elephant while the elephant is stomping all over us," Bartlett said.
Ellen Seidman, a former Office of Thrift Supervision director, said a separate consumer protection regulator is needed but that the main enforcement duties should remain with bank regulators.
"Where there is prudential supervision, it would be a mistake to throw it away," Seidman said. "The primary enforcement entity should be the prudential supervisor."