By Eugene T. Lowe
April 19, 2010

Back from the Easter and Passover recess, and with Health Care Reform behind them, President Barack Obama and Senate Democrats have made the passage of financial regulatory reform their top priority. But the legislation is far from passage with GOP leaders opposed to it. A draft of the bill was approved by the Senate Banking Committee, chaired by Senator Chris Dodd (CT) on March 22 along a party-line vote. At issue is the power that would be given to a consumer protection regulator over products such as mortgages and credit cards.

Last December, the House of Representatives passed legislation (H.R. 4173) that would create a separate, independent Consumer Financial Protection Agency. In that same legislation, Representative Chaka Fattah (PA) offered an amendment that was passed that would create another round of the Neighborhood Stabilization Program (NSP) and provide other mortgage foreclosure prevention funds. The House legislation is largely what the Obama administration wanted.

But Senate Republicans do not like the idea of a new consumer agency with as much power as authorized in the House bill. In a compromise, Dodd accepted a consumer regulator inside the Federal Reserve with a council of financial supervisors that could by two-thirds majority vote overrule decisions of the consumer regulator. Senator Richard Shelby (AL), ranking member of the Banking Committee, has moved the debate up a notch with an idea that the consumer agency be freestanding but with financial regulators having veto power over its actions.

The consumer protection agency is only one of many provisions in the financial reform legislation. In addition to Representatives Fattah’s mortgage prevention provision, financial derivatives, and a provision that would put private sector and public sector bonds on the same rating system, are some of the other key measures included in the legislation. As U.S.Mayor goes to print, President Obama has summoned both democrats and republicans to the White House to encourage movement on the legislation in the Senate.