House panel OKs consumer protection agency

updated 2:06 p.m. ET Oct. 22, 2009

WASHINGTON - The House Financial Services Committee voted Thursday to create a federal agency devoted to protecting U.S. consumers from predatory lending, abusive overdraft fees and unfair rate hikes.

Democrats are hailing the 39-29 vote as a win for the average American. It is a major step forward in enacting President Barack Obama's plan to tighten the rules governing Wall Street, although the measure still faces scrutiny by the full House and Senate.

The legislation has been the target of an aggressive multimillion-dollar lobbying campaign by the financial industry, which contends that the agency would have dangerously broad reach.

Thursday's vote indicates that Democrats were willing to shrug off those concerns and are likely to pass the bill on the floor by the end of the year.

President Barack Obama said the vote "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."

Also on Thursday, the committee was set to approve legislation that would impose new rules for credit cards on Dec. 1. A similar bill already passed Congress but won't take effect until mid-February.

Democrats have said the proposed Consumer Financial Protection Agency would help to reach across various businesses to stop fraud and abusive practices. That regulators didn't monitor nonbank institutions like mortgage brokers was considered a major factor in subprime lending abuses that led to the housing market crash.

But there is plenty of fine print that will limit the new agency's scope.

Under pressure from industry, the Financial Services Committee has carved out numerous exemptions to agency oversight, including retailers, auto dealers, real estate brokers, lawyers, cable companies and accountants.

Banks that help those businesses complete financial transactions would still fall under the agency's purview. For example, a bank that issues a store-brand credit card or provides auto financing would be subject to agency rules.

Rep. Gwen Moore, a Democrat from Wisconsin with a major private mortgage insurer in her district, on Wednesday pushed though another exemption for credit, mortgage and title insurers.

Rep. Barney Frank, who chairs the panel, said exceptions were being made to clarify that the agency will monitor financial products and not every financial transaction made by the American public. But he scoffed at several Republican proposals, including one by Rep. Tom Price, R-Ga. that would have exempted student loan providers. Frank charged that those provisions were aimed at gutting the bill.

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