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March 1, 2010 Monday 3:31 PM EST
SECTION: NEWS & COMMENTARY; Economy and Politics
LENGTH: 931 words
HEADLINE: Dodd, Shelby eye competing plans for mortgage regs
BYLINE: Ronald D. Orol, MarketWatch mailto:firstname.lastname@example.org.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
WASHINGTON (MarketWatch) — Two key senators have released competing proposals to reform consumer protection for mortgages and credit-card products in the wake of the financial crisis that shook the economy to the brink, one that would set up a relatively autonomous entity and another that would place new powers within an existing agency.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., dropped plans for a separate, stand-alone agency to write rules seeking to protect consumers against credit-card and mortgage fraud in a bid to restart stalled financial-reform legislation.
Dodd has proposed creating a consumer-protection division within the Treasury Department, according to a draft proposal obtained by MarketWatch.
According to Dodd’s proposal, the head of the Treasury division in charge of financial regulation would be appointed by the president and have rule-writing and enforcement authority over banks and credit unions with $10 billion or more in assets. However, as part of the compromise offering, the consumer division would have to consult with bank regulators before adopting rules. For conservatives this doesn’t go far enough because bank regulators could not reject rules adopted by the consumer division.
Alternatively, Senate Banking Committee ranking member Richard Shelby, R-Ala., on Monday floated a proposal that would set up a consumer-protection division within the Federal Deposit Insurance Corp., according to another proposal obtained by MarketWatch.
A major difference between the proposals is that, in Shelby’s proposal, consumer-protection rules would be subject to the FDIC board, which could veto any of the rules, while the body created under Dodd’s measure would only need to consult with bank regulators.
Legislative leaders argue that Dodd needs Shelby to attain the filibuster-proof 60 votes needed for broad bank-reform legislation to be approved by the Senate.
“Sen. Dodd can probably get whatever he wants out of the Banking Committee, but on the floor he needs Shelby to get legislation passed,” said House Financial Services ranking member Spencer Bachus, R-Ala., in an interview with MarketWatch.
Financial regulatory reform has been a key legislative priority of Democrats in the wake of the credit crisis and near-collapse of the financial system in September 2008.
Dodd, who isn’t seeking re-election, is trying to reach a compromise with Shelby and committee member Sen. Bob Corker, R-Tenn.
GOP lawmakers like the Shelby proposal better than the Dodd measure, in part, because it allows one agency, the FDIC, to focus on consumer protection and the safety and soundness of banks. Federal Reserve Chairman Ben Bernanke has argued that it makes sense to keep both types of oversight at one regulator because they complement each other.
However, Democrats and consumer groups are opposed to leaving in the hands of bank regulators authority over consumer protection, arguing that such regulators as the Fed failed to protect consumers from the subprime mortgages that led, in part, to the financial crisis. They contend that consumers would only be protected by an independent agency with consumer protection as its primary focus.
Who’s in charge?
Another difference between the two proposals is that Dodd’s would have the head of the consumer division presidentially appointed, while Shelby’s would have the director appointed by the president and confirmed by the Senate. Both measures would seek to have the chairman appointed for a five-year term so that the director is unlikely to change when an administration changes.
Bachus has contended that the Dodd proposal doesn’t require the director to be Senate-confirmed because that could make it easier for the White House to appoint Harvard Law School professor Elizabeth Warren, a major advocate of consumer groups. Warren, who chairs the Congressional Oversight Panel for the $700 billion bank-bailout bill, has been an outspoken advocate of an independent consumer-protection agency.
Conservatives have voiced their worry that Warren would impose too many regulations on mortgages and credit-card products, which they’ve argued would raise costs and limit choice for consumers.
As part of the Dodd proposal, the consumer-protection-division chief would also oversee nonbank financial institutions such as so-called payday lenders. Banks with less than $10 billion in assets would be exempt from the bureau’s oversight unless the consumer unit’s investigators found that their primary regulator wasn’t doing the job.
Dodd’s measure does also give bank regulators some influence in consumer protection. Each bank’s primary regulator could appeal the division’s regulations, arguing that it would harm the institution’s safety and soundness.
The appeal would also be considered by a systemic-risk council, which legislators are seeking to create to coordinate and oversee the financial system in an effort to identify dangerous trends and institutions before they pose systemwide threats.
Dodd is seeking to create a consolidated bank regulator, taking a hodgepodge of existing regulators for financial institutions and merging them under one roof.
Jaret Seiberg, an analyst at Concept Capital, has contended that, in practice, there is little chance that a regulator could challenge a consumer-protection rule.
“That just seems politically infeasible,” Seiberg said. “So we do not consider this a check on the [Consumer Financial Protection Agency’s] powers.”
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