U.S. lawmakers propose financial products watchdog

WASHINGTON (Reuters) - U.S. senators introduced legislation on Tuesday to create a Financial Product Safety Commission, which would crack down on predatory or deceptive financial practices.

Democratic Senators Dick Durbin from Illinois and Charles Schumer from New York said U.S. regulators had failed to adequately protect consumers when trying to monitor the safety and soundness of financial firms.

"This will be a new regulator that will focus like a laser on financial products and financial products alone," Schumer said at a news conference. "The Federal Reserve was supposed to do this, but they were asleep at the switch."

Sen. Ted Kennedy of Massachusetts also sponsored the legislation, and House Democrats expect to introduce a similar bill next week.

The lawmakers said the commission would have rule-making authority and would coordinate enforcement with the other federal and state regulators. The commission will not take away powers from any of the existing agencies, they said.

The commission will be responsible for identifying practices that undermine sound markets and will educate consumers on the responsible use of financial products and services.

Elizabeth Warren, the head of a congressionally appointed oversight panel for the government's financial bailout, conceived the idea of the commission.

She said the global economic crisis could have been averted if proper safeguards had prevented excessively risky financial products from proliferating around the world.

"Consumer financial products were at the front end of the destabilization of the American economic system," Warren said at the news conference. "When you have good safety standards, you have a floor, and competition is then consumer-friendly competition."

(Reporting by Karey Wutkowski; Editing by Lisa Von Ahn)