House debates historic financial rules overhaul

WASHINGTON (Reuters) - The House of Representatives began debating the most sweeping changes to financial regulation proposed since the Great Depression on Thursday, with lawmakers wrangling over late amendments.

Democrats won an early evening procedural vote 238-186 that allowed House floor consideration of 36 amendments to start. Leaders are targeting a final vote on the bill on Friday.

House approval, widely expected by analysts, would throw financial reform onto the shoulders of the slower-moving Senate, where debate is likely to go well into 2010.

The House bill would give the government new powers over large banks, regulate over-the-counter derivatives for the first time, and set up a Consumer Financial Protection Agency to regulate credit cards, mortgages and other products.

It would create an inter-agency council to police systemic risks in the economy, and crack down on hedge funds and credit rating agencies, among many other reforms backed by the Obama administration in response to last year's financial crisis.

Some of the amendments coming to the House floor would add important features, if approved, to the 1,279-page bill.

The legislation is solidly opposed by Republicans. Bank and Wall Street lobbyists have spent months trying to delay and resist it.

An amendment being offered by Democratic Representative John Conyers would let bankruptcy judges change the terms of mortgages for distressed homeowners in bankruptcy court -- a long-sought goal of homeowner advocates and one that has garnered more attention in a climate of soaring foreclosures.

The House had passed virtually the same measure -- known as mortgage "cramdown" -- in March, but it died in the Senate.

Another amendment, from Democratic Representative Stephen Lynch, would limit financial firms to 20 percent ownership stakes in over-the-counter derivatives clearinghouses to combat possible conflicts of interest. Some financial services industry interests oppose the measure.

CFPA TARGETED

Yet another amendment, from Democratic Representative Walt Minnick, would scrap the proposed Consumer Financial Protection Agency (CFPA) -- a central part of the administration's reform program -- and replace it with a council of regulators.

White House spokeswoman Jennifer Psaki said the CFPA would crack down on deceptive practices in the financial sector.

Minnick's amendment, she said, "creates a bureaucratic maze that guarantees that big banks, mortgage companies and credit card companies can continue to get away with the practices that helped cause the financial crisis and hurt American families."

Financial reforms are strongly backed by President Barack Obama and most congressional Democrats, who see them as crucial to preventing a repeat of last year's global crisis and bailouts of firms such as AIG and Citigroup.

"We here can begin again to protect the American people from the rascality of a bunch of sharp-shooting MBAs interested only in grubbing money," said Democratic Representative John Dingell in debate on the procedural rule for the bill.

"The American economic system is too precious to trust unattended to New York and to the big banks and the other wheelers and dealers up there. What we are doing today is seeing to it that that system is protected," Dingell said.

Republicans have attacked the bill as a measure that would codify bailouts in law and destroy jobs, while setting up new government bureaucracies and piling costs on businesses.

Republican Representative Tom Price said the bill "will radically change the way markets function and vastly expand the federal government's regulation of the free market."

DEAL ON AMENDMENTS

The Conyers, Lynch and Minnick amendments were cleared to go to the floor under a deal settling differences among House Democrats over handling the massive financial reform bill.

Some other changes were incorporated into the bill by House Financial Services Committee Chairman Barney Frank.

One would reduce to 10 percent from 20 percent the potential "haircut," or financial loss, that secured creditors could take in resolving the problems of large financial firms.

Others would create a mutual commercial bank charter; require banks to offer information in their branches explaining overdraft protection program fees; and cap the Federal Deposit Insurance Corp's power to guarantee debts at $500 billion.

Another change accepted by Frank would require private student loan firms to get certifications before making loans.

Frank has struggled in recent days to keep Democrats in line, with pro-business moderates seeking changes to the bill and the Congressional Black Caucus pursuing its own goals.

The support of the Black Caucus was cemented, aides said, by Frank's pledge to put $4 billion in the revised bill for emergency mortgage assistance to unemployed homeowners and assistance for purchase and repair of foreclosed properties.

(Additional reporting by Alister Bull; Editing by Andrew Hay)