WASHINGTON — There is broad agreement in Congress that government regulators failed to protect Americans from subprime mortgages and other risky credit products, but Democrats and Republicans split sharply Wednesday over creating a consumer watchdog agency to police the financial industry.
A Consumer Financial Products Agency is one of the pillars of the Obama administration's overhaul of financial regulations to avoid the unfettered wheeling and dealing that precipitated the economic crisis that has gripped the nation for the last 18 months. But like another key component -- expanding the power of the Federal Reserve to regulate large financial institutions -- the proposal is drawing fire on Capitol Hill, demonstrating the difficulty the administration faces in pushing its complex plan into law.
"Un-elected bureaucrats will decide what mortgages we can have, what bank accounts we can open, they may even decide if we can have a credit card," said Rep. Jeb Hensarling (R-Texas). "We must preserve economic liberty and consumer choice."
The proposed consumer agency is supported by key Democratic lawmakers, including House Financial Services Chairman Barney Frank (D-Mass.), who held a hearing on the plan Wednesday. He said creation of the agency would be one of the first components of President Obama's regulatory reform plan his committee votes on, and it plans to do so by the end of July.
Frank agreed with Obama that consumer issues largely have been an afterthought at the numerous financial regulatory agencies that share responsibility for them, with disastrous consequences for the economy. The administration plan would centralize those responsibilities in a new agency with consumer protection as its sole mandate. The agency would have power to write new rules for mortgages, credit cards and other products, and enforce them in conjunction with state officials.
"It's been my experience that when you have an ongoing responsibility for broad systemic issues, consumer complaints can get crowded out," Frank said, hammering the Federal Reserve in particular for "literally ignoring" its responsibility for policing mortgages and credit cards offered to average Americans.
The proposal for a new agency mirrors legislation introduced in March by Rep. Bill Delahunt (D-Mass.). The idea was the brainchild of Elizabeth Warren, a Harvard University law professor and chairwoman of the government panel overseeing the $700-billion financial bailout fund.
