* Consumer Financial Protection Agency support seen waning
* Senior Dem aide: no downgrade of CFPA on table
* Republicans, bankers firmly opposed to agency
(Adds senior Democratic aide comment)
By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Jan 12 The Obama administration's
proposal to create a new U.S. agency to protect financial
consumers is fast losing support in the U.S. Senate Banking
Committee, said lobbyists and analysts on Tuesday.
In a potential setback for the White House, committee
members were said to be talking about reducing the proposed
agency's status, possibly making it instead a division of a new
systemic risk regulator or a new super-cop for banks.
No such proposals have been agreed on, nor are they under
discussion as compromises, said a senior Democratic aide.
But if the watchdog were stripped of independent agency
status, it would be considerably less formidable than President
Barack Obama's original proposal to set up a new U.S. Consumer
Financial Protection Agency, or CFPA.
"CFPA is losing steam by the day right now," said Joseph
Engelhard, a policy analyst at investment advisory firm Capital
Alpha Partners in Washington, D.C.
Some speculation has suggested the first head of Obama's
proposed CFPA could be Elizabeth Warren, the outspoken Harvard
Law School professor who now chairs a panel overseeing the
government's $700-billion financial bailout program.
The CFPA "will be watered down," Engelhard said. "The days
of Elizabeth Warren raining down lightning bolts on the
financial industry are waning."
The banking industry and Republicans are fighting hard to
block or weaken the CFPA, which would regulate credit cards,
mortgages, payday loans and other financial products, posing a
threat to the profits of many financial services businesses.
Opponents have said the agency would stifle financial
innovation and burden businesses with another layer of
bureaucracy and costs, while supporters say it is badly needed
to shield consumers from sharp practices by financial firms.
"Financial reform is badly needed to protect working
families and small businesses by reining in the greedy,
reckless behavior of big banks on Wall Street," said Heather
Booth, executive director of Americans for Financial Reform, a
group that supports a strong CFPA.
As proposed by Obama, the CFPA would strip existing
agencies, including the Federal Reserve, of their consumer
protection duties and centralize them in a new organization
devoted solely to the job. The Fed and other agencies have been
criticized for giving short shrift to consumer protection.
The U.S. House of Representatives last month approved a
financial regulation reform bill that includes the CFPA,
although its scope was reduced from the Obama proposal.
"My sense is that it will probably get watered down in the
Senate ... The Senate always waters down what the House does. I
don't think this will be any exception," said Greg Valliere,
policy analyst at investment advisory firm Soleil Securities.
Senator Christopher Dodd, chairman of the Senate Banking
Committee, introduced legislation last year that also called
for establishing the CFPA. But Republican committee members
blasted the Dodd bill immediately after it was unveiled.
Now committee members are trying to craft a new bill with
bipartisan support. Dodd -- who said last week that he will
retire at the end of 2010 -- said on Monday he hopes to move a
bill from the committee to the Senate floor within weeks.
If the Senate approves a financial regulation reform
package, it would have to be reconciled with the House-passed
measure before a single compromise bill could be sent to Obama
to be signed into law.
(Editing by Andrew Hay)