To the chagrin of consumer groups, the House gave overwhelming bipartisan approval Monday to two bills easing requirements that President Barack Obama's overhaul of financial regulations impose on some exotic financial instruments blamed for helping trigger the 2008 financial crisis.
Lawmakers of both parties said they were relaxing rules that would otherwise inhibit the ability of companies to manage the risks of prices and investments, ultimately reducing their profitability and job creation. Consumer groups said legislators were bowing to the interests of their corporate and finance-world contributors and taking steps that might prove harmful to the public.
The instruments are called derivatives, assets tied to the value of commodities like petroleum or fluctuating economic variables like interest rates.
One measure, approved 357-36, would exempt some derivative trades between related companies from rules including requirements that they set aside money to cover possible losses. Firms sometimes move a derivative from one subsidiary to another that might be in a better position to handle the risk involved, perhaps because one has more capital or could enjoy a tax advantage.
The other bill passed 370-24 and would provide similar exemptions to companies called end-users that directly use the commodity tied to the derivative. For example, airlines sometimes purchase derivatives tied to the cost of jet fuel as a hedge against price increases.
"End users, you know, were not the cause of the financial crisis," said Rep. Scott Garrett, R-N.J.
Democrats praised the bills as well.
"We should allow American businesses, acting in good faith, to effectively manage risk," said Rep. Marcia Fudge, D-Ohio.
The bill was not the first time Congress has tried rolling back provisions of the 2010 revamping of federal regulation of the financial industry — a response to the financial meltdown in 2008. But in the past, such efforts — including providing less money than the administration wanted for regulatory agencies — were spearheaded by Republicans, not lawmakers from both parties.
Consumer advocates said the two bills could lead to abuses. For example, the bill addressing transactions between related companies refers to swaps between "affiliates." Marcus Stanley, policy director for Americans for Financial Reform, said he worried that corporate lawyers would try broadening the use of that term to include more and more companies.
"It's ridiculous to put this broad exemption into statute," Stanley said.
Bartlett Naylor, financial policy advocate for Public Citizen, blamed the upcoming congressional elections.
"Unfortunately in an election year, the default position in my opinion is to curry favor with your major source of funding," Naylor said.
By voice vote, the House also approved a third bill that would give financial institutions regulated by the Consumer Financial Protection Bureau the same privacy protections they get from other regulators. The bill would require that sensitive legal information firms provided to the bureau be kept secret.
Travis Plunkett, legislative director of the Consumer Federation of America, said that measure was not controversial.
Senate Banking Committee Chairman Tim Johnson, D-S.D., has expressed support for minor regulatory changes that have broad bipartisan support, said spokesman Sean Oblack.
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