House panel delays action on new consumer agency

WASHINGTON (Reuters) - A key U.S. congressional committee has delayed action on legislation to create a consumer financial protection agency, in order to give consumer advocates a chance to weigh in, a congressional aide said on Tuesday.

The House Financial Services Committee has delayed the markup to further draft legislation to September from July, after the proposal drew sharp criticism from the financial industry and concern from some current bank regulators who do not want to be stripped of their consumer protection roles.

"It will give consumer groups and their allies a chance to fight back," said Steve Adamske, an aide to Representative Barney Frank, who chairs the House Financial Services Committee.

A markup is a committee session in which a bill is drafted and typically brought to a vote, paving the way for it to move to a full House vote.

A group of 23 industry organizations sent a letter on Monday to the leaders of Frank's committee, asking them to delay consideration of the bill until after Congress' August recess.

"The precarious state of the economy makes it a particularly dangerous time to enact legislation without a clear understanding of its full impact on the business community at large," the letter said.

Frank introduced legislation earlier this month to create a new consumer financial protection agency with broad powers to write and enforce rules on financial products such as credit cards and mortgages.

His legislation, which was introduced with 12 Democratic co-sponsors but no Republicans, is largely similar to the Obama administration's proposal that is part of a larger effort to reform financial regulation.

Many Democratic lawmakers strongly support the idea, while some Republicans have lined up with the banking industry on attacking the proposed agency, saying it would be an unnecessary layer of regulation that could drive up costs for consumers.

Current regulators are also voicing their concerns that the new agency would strip them of consumer protection powers that are best housed with firms' primary regulators, perhaps with increased focus. They believe it makes little sense to split consumer protection from government oversight of the banking business' health.

Fed Governor Elizabeth Duke told lawmakers last week that there was a "compelling case" for the central bank to keep its consumer role.

"The Federal Reserve has the resources, the structure and the experience to execute an ongoing comprehensive program for effective consumer protection in financial services," Duke said.

(Reporting by Karey Wutkowski; Additional reporting by Kevin Drawbaugh; Editing by Tim Dobbyn and Richard Chang)