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Democrats, industry battle over consumer protections
WASHINGTON -- Democrats are pressing the Obama administration to find a way out of the foreclosure crisis as they moved ahead with plans to create a government agency that would police the market for risky or deceptive mortgages.
The agenda has the financial industry nervous it will find itself buried in new regulations. But under pressure from cash-strapped voters, lawmakers suggested Wednesday that they won't bend.
"The fear that this will be some out-of-control entity ravaging the financial sector is unsupported by anything in American history," said Rep. Barney Frank, chairman of the House Financial Services Committee.
Frank said his panel would begin reviewing legislation in July to charter the Consumer Financial Protection Agency. The bill would be included as part of a broader regulation reform bill.
Momentum behind the proposal came as 20 senators, including Majority Leader Harry Reid, D-Nev., and Senate Banking Committee chairman Christopher Dodd, D-Conn., asked Treasury Secretary Timothy Geithner in a letter Wednesday to develop a new strategy for preventing foreclosures.
Democrats are working to provide tangible relief in the troubled economy. At the top of their priority list is curbing rising unemployment and home foreclosures.
Earlier this year, a Democratic proposal that failed would have forced banks to reduce a person's monthly mortgage if they fell into bankruptcy. Lenders lobbied against it, and President Obama didn't fight back, focusing instead on other economic initiatives that required industry cooperation.
Obama has relied on an antiforeclosure program that encourages, but does not require, industry participation.
Democrats say it hasn't been enough.
"The administration must keep pushing to ensure that servicers' public pronouncements translate into relief for homeowners," said Sen. Jack Reed, D-R.I., a senior member of the Senate Banking Committee.
Herbert Allison, the assistant secretary of Treasury for financial stability, told an oversight panel on Wednesday that the administration continues to look at various solutions to the foreclosure crisis and is "totally open to ideas."
Obama announced last week the biggest reform effort to financial regulations since the 1930s. He said the changes, including creation of a consumer protection agency, were necessary to fill in regulatory gaps and prevent another economic crisis.
Republicans and industry groups are railing against much of his proposal. They say there already are enough regulators policing the market and that holding those regulators more accountable would have prevented the current crisis.
"Unelected bureaucrats will now decide what mortgages we can have. They can decide what bank accounts we can open. They may even decide whether or not we can be trusted with a credit card," said Rep. Jeb Hensarling, R-Texas.
Elizabeth Warren, who chairs a congressionally appointed panel with the job of reviewing the financial system, said tougher protection isn't about bailing out irresponsible consumers, but fixing a system designed to trap people into debt.
"Literacy is not going to solve the problem of a 30-page credit card contract," she said.
Dodd, D-Conn., also has spoken out in defense of creating a new regulatory agency. His support suggests that its establishment is all but guaranteed.
Less clear is the administration's proposal to task the Federal Reserve with regulating any institution deemed so big or influential in the market that its failure could seriously damage the economy.
Last week, several senators criticized the Fed for its role in the recent crisis.