White House Defends Consumer Protection Agency

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President Obama supports the Consumer Financial Protection AgencyThe White House is wasting little time trying to whip up support for the recently passed Financial Reform bill, which includes the creation of an agency with broad powers to protect consumers from abusive practices of financial services firms -- something the banking industry argues isn't necessary.

Speaking Friday to a group of reporters, Austan Goolsbee, a member of the president's Council of Economic Advisers, argued that the Consumer Financial Protection Agency, or CFPA, would provide the "strongest consumer protection we have ever had on financial stuff."

Many details need to be worked out, including whether the CFPA will be independent, as envisioned in the House version, or part of the Federal Reserve, which is how the Senate bill passed Thursday envisions it. The Obama administration, which originally wanted a standalone agency, isn't concerned about its configuration, Goolsbee says.

"I don't know the answer to where it will be housed," he says. "It's going to have robust, independent rule-making authority... consolidating what is spread over seven different agencies and is not the central focus of any of them."

Banking Industry Opposition

The banking industry remains vehemently opposed to the Financial Reform bill. The American Bankers Association argues that the agency would be the "wrong approach" to help consumers. "I don't know how adding an agency streamlines things," says John Hall, a spokesman for the ABA, in an interview.

When I asked Goolsbee whether the White House could reach an agreement with the bankers, he chuckled, adding "our goal is not to build a bridge to what the banks want." He shot back at financial services firms who are complaining about the costs of the bill, which he argued are "dwarfed by the bonuses and compensation paid by the financial firms."

Among the issues that the CFPA may take up are payday lending services and predatory lending practices, long the bane of consumer activists. The Center for Responsible Lending is urging members of Congress to resist Wall Street's efforts to water down the bill. In his interview, Goolsbee vowed to do just that.

"I would not be surprised if a number of the consumer protections would go into place right away," he says. "The point of the of the thing is to get rules of the road into place that are not extended out into the future."

House and Senate Differences

There are differences between the House and Senate bills besides how the CFPA will be set up. Much to the chagrin of consumer activists, the House version excludes auto dealers from the agency's purview. Regulators would be able to appeal the agency's rules to an oversight council that could veto them with a two-thirds vote.

Members of Congress seem confident that the differences between the bills will be resolved in a conference committee. Both bills allow state consumer financial protection laws to be preempted. The Senate bill gives state attorneys general a role in enforcement.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), the head of the House Financial Services Committee, told reporters in Washington that Obama would be able to sign the bill by the Fourth of July holiday. The U.S. Chamber of Commerce won't be in a celebratory mood.

In a statement issued yesterday, Chamber CEO Thomas Donohue minced no words: "If you want to drive capital out of the United States, this is your bill. This process was about political sound bites rather than sound economic policy."

DailyFinance is media partner to the annual John M. Templeton Jr. lecture to be given this year by Lawrence Summers, President Obama's Chief Economic Advisor, at the National Constitution Center in Philadelphia, Pennsylvania, on May 27. Summers will be discussing America's economic landscape in the post-recession world. You can leave questions for Summers in the comments of this article.
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