Congress Introduces New Legislation To Create An Agency To Oversee Financial Regulation

The U.S. House of Representatives Financial Services Committee has recently approved a federal agency to regulate home loans, credit cards, savings accounts and other financial services despite complaints from banks and commercial businesses. The vote of 39-29 fell along party lines.

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," Obama said in a statement.

The Financial Services Committee also approved by voice vote legislation that would impose new rules for credit cards by Dec. 1, moving up the date from mid-February. Members of the House explained that the change was necessary to prevent lenders from using the grace period to increase interest rates.

The proposed agency is the cornerstone of Obama’s plan to clamp down on Wall Street and prevent much of the reckless lending that contributed to last year’s near-collapse of the market.

As many lobbyists pressured lawmakers to scale back the legislation, Treasury Secretary Timothy Geithner and other senior administration officials personally appealed to lawmakers not to strengthen the bill.

In the end, the bill exempted general retailers, auto dealers, title insurers, accountants, lawyers and others. Lawmakers said businesses would only face scrutiny if they offer financial services, such as a car loan, but that the agency would not monitor every financial transaction, including store layaway plans.

Also under the bill, all but the biggest banks were spared from routine agency inspections and no businesses were required to offer standard, government-approved financial services, as Obama had wanted.

"Everyone told me that the banks always win. Quit now because they always win," said Elizabeth Warren, who heads an independent panel that monitors the government’s bank bailout program and initially proposed the concept of a consumer protection agency. "They didn’t win today."

The American Bankers Association said it would continue to oppose the bill when it goes to vote in the House and potentially the Senate.

"We still have major concerns with some principal areas" including "the very broad, ill-defined authority that is granted to this new agency that could be used to justify essentially any regulatory action," said Floyd Stoner, ABA vice president for congressional relations.

Obama chastised the financial industry in his statement. "They are doing what they always do — descending on Congress, using every bit of influence they have to maintain the status quo that has maximized their profits at the expense of American consumers, despite the fact that recently those same American consumers bailed them out as a consequence of the bad decisions that they made," he said.