House poised to vote on overhaul of financial regulation

Spurred by the near collapse of the financial system in 2008, the House is set to vote Friday on the most sweeping overhaul of how Wall Street does business since the Depression-era New Deal.

The 1,279-page bill gives government new powers to rein in “too big to fail” companies that pose a systemic risk to the economy and to regulate the opaque $450 trillion derivatives market seen as the epicenter of the financial crisis. It expands federal powers to protect investors and consumers.

“The legislation, the Wall Street Reform and Consumer Protection Act, says very clearly to Wall Street: The party is over,” said House Speaker Nancy Pelosi at a briefing on Thursday. “American families will no longer be at the mercy of Wall Street in terms of their jobs, their homes, their pension security, the education of their children.”

Republicans, who dub the bill a “permanent bailout” and a job killer, are expected to oppose it unanimously. But the big issue in Friday’s vote is whether they can combine with enough moderate Democrats to kill a centerpiece of the legislation: the creation of an independent Consumer Financial Protection Agency (CFPA) to oversee mortgages, credit cards, and “payday” lenders.

To get a bill to the floor, Democratic leaders had to cut deals with critics at both ends of their caucus. After boycotting the vote on the bill in the Financial Services Committee, the Congressional Black Caucus prevailed on leaders to add to the bill $4 billion for emergency housing relief, from funds from the Troubled Asset Relief Program (TARP).

New Democrats – a pro-business wing of the party – won concessions that give federal regulators more scope to preempt state consumer-protection laws deemed to “significantly interfere with or materially impair a national bank's ability to do business.”

“Principally I supported having strong, robust national standards and enforcing them uniformly,” says Rep. Melissa Bean (D) of Illinois, the vice chair of the 68-member New Democrat Coalition. “It creates uniformity in the system and in a globally connected financial world working toward international standards.”

Negotiations over this provision delayed floor debate on the bill, and they entailed the Treasury Department and speaker’s office working out a compromise. It was backed by the Financial Services Roundtable, a leading industry group. But critics, including consumer groups, cautioned that the provision sets a ceiling on state consumer protections.

“We found out in the 1990s that often the federal regulators won’t move when they plainly should. Blocking the states from moving means you will repeat the experience,” says Thomas Ferguson, a political scientist at the University of Massachusetts in Boston.

But the top issue for business groups – as well as the consumer interests opposing them – is the fate of the proposed Consumer Financial Protection Agency. According to critics, a new federal agency, especially in the current political climate, could exert too strong a hand and suppress financial innovation and jobs.

Freshman Rep. Walt Minnick (D) of Idaho, a member of the fiscally conservative Blue Dog Coalition, is proposing an amendment to ax the proposed CFPA. Instead, he proposes a 12-member Consumer Financial Protection Council made up of existing offices, including the secretary of Treasury, secretary of Housing and Urban Development, the chairman of the Federal Reserve, and other federal and state regulators.

Business groups, including the US Chamber of Commerce and the Financial Services Roundtable, strongly oppose the CFPA and endorse this amendment. “While we support consumer protections, we think there’s a more effective way: to use existing regulators and elevate consumer protection as a core mission,” says Scott Talbott, chief lobbyist for the Financial Services Roundtable.

Republicans are expected to support the Minnick amendment but oppose the overall bill.

“What we’ve seen from the Democrats is an attempt to spend our way into jobs, to borrow our way into jobs, and now an attempt to bailout our way into jobs,” said Rep. Jeb Hensarling (R) of Texas during Thursday night’s floor debate. “The result is the first trillion-dollar deficit in our nation’s history and a tripling of our national debt.”

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