Consumer Financial Protection Plan Divides Congress

This article was originally published by the Fiscal Times on Thursday, March 25, 2010.

Democrats want a watchdog to protect consumers from reckless practices, but Republicans say regulation would be costly and inefficient.

By Katherine Reynolds Lewis

When it comes to overhauling financial regulations, Democrats and Republicans have much to fight over: how best to rein in the derivatives market, establish bank takeover procedures, curb executive pay and end government bailouts of mismanaged institutions deemed "too big to fail."

But as the Senate prepares to debate a bill next month aimed at preventing the behavior that led to one of the worst financial crises in U.S. history, perhaps the most contentious measure is one that would create a regulator devoted to protecting consumers from unscrupulous or reckless practices.

President Obama and House and Senate Democratic leaders believe the proposal is a no-brainer. Unless an independent regulator is looking out for consumers, they say, any financial regulatory reform will fail to prevent the kind of risky behavior and predatory business practices that fostered the 2008 financial meltdown.


"Our legislation will protect consumers from unsafe financial products, such as the subprime mortgages that led to the financial crisis in the first place," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., just before his committee approved the measure on Monday. "Most importantly, it will restore financial security so that our economy can create jobs and offer middle-class families a chance to build wealth in our country."

Banking lobbyists and conservative lawmakers say a new layer of regulation would be costly and inefficient, and could even put the financial system in danger by forcing financial institutions to offer products at unreasonably favorable terms to consumers.

"The bureau could issue a rule that would undermine the safety and soundness of the bank," said Scott Talbott, a senior vice president at the Financial Services Roundtable, which represents the world's biggest financial institutions. "The issue is not whether we should protect consumers or not; everybody agrees on that shared goal. The question is, what is the most effective way to do it?"

Debate is certain to be extensive and hard fought, with lawmakers divided sharply along ideological lines, and unlikely to be resolved easily -- if at all. Business interests are pushing to weaken the regulator's power or kill it, while consumer advocates want to beef up the initial proposal.

Read the full article at the Fiscal Times.