Tags: US | Financial | Overhaul

Obama: GOP Plan Would 'Gut' Consumer Protections

Thursday, 06 May 2010 12:29 PM

President Barack Obama says a Republican plan to weaken the consumer protections in the Democrats' financial regulation bill would leave things worse than they are now.

Obama issued his statement Thursday as Democrats and Republicans in the Senate debated the bill. Democrats have proposed an independent consumer bureau within the Federal Reserve to write and enforce regulations that would police lending.

The Republican proposal would create an agency within the Federal Deposit Insurance Corp. The FDIC would have to approve regulations. Enforcement would be left to bank regulators.

The president says the Republican proposal would "gut consumer protections" and would be worse than the status quo. It would exempt payday lenders, debt collectors, and other financial service operations from rules needed to protect consumers, he says.

A bipartisan group of senators, led by independent Bernie Sanders, was next in line with an amendment that would require the Federal Reserve to undergo a thorough audit by Congress' investigative arm, the Government Accountability Office.

Votes on those measures could come as early as Thursday.

By a 98-0 vote, the Senate approved a proposal by Sens. Jon Tester, a Democrat., and Kay Bailey Hutchison, a Republican, that would let small community banks pay a smaller assessment than large banks toward the Federal Deposit Insurance Corp.'s insurance fund.

The Republican consumer plan was introduced by Senate Republican Leader Mitch McConnell and the top party lawmaker on the Banking Committee, Sen. Richard Shelby, a reflection of the priority the party places on that provision of the bill. Their proposal would limit the enforcement power of a proposed consumer protection bureau and make its rules subject to approval by a top banking regulator.

It would create a division of consumer protection within the FDIC to oversee nonbank mortgage companies and write consumer regulations. The FDIC would have to sign off on those rules.

In contrast, the Democratic plan backed by the Obama administration would create an independent bureau within the Federal Reserve to police lending and other customer financial service transactions. It would have a freer hand to enforce its regulations.

"It creates one of the most important, one of the most powerful, all-powerful individuals in the entire federal government," Sen. Roger Wicker, a Republican, said, objecting to the autonomy Democrats would give the head of the bureau.

In another departure from the pending Democratic bill, the Republican plan would continue the practice of having federal laws override state laws. Under the Democratic proposal, states would be allowed to write and enforce tougher laws, a provision opposed by the financial industry.

Creating a new consumer financial protection entity within the government is a central piece of the Obama administration's regulatory package. Obama has said he would veto legislation that contained consumer protections he deems too weak.

Republicans have complained that the Senate Democratic proposal, which is not as ambitious as the administration's, would be too sweeping and create a patchwork of state rules.

On the White House website Thursday, Communications Director Dan Pfeiffer criticized the Republican proposal for keeping consumer protections primarily in the hands of bank regulators who must also oversee banks for their financial soundness.

"It also leaves payday lenders, debt collectors, and other financial services operations with a huge exemption from federal oversight simply because they aren't called 'banks,'" he wrote.

After the Senate deals with the Republican consumer protection amendment, it is scheduled to debate and vote on Sanders' proposal to audit the Federal Reserve. The measure has populist support from across the political spectrum.

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