UPDATE 3-Obama admin. sets wide scope for consumer agency

* Congress gets draft bill for U.S. consumer regulator

* Plan strips consumer compliance from existing agencies

* Rep. Frank vows committee bill passed by August

* Business, bank lobbyists oppose new regulatory layer (Recasts, adds comments, detail on state laws, insurance)

By David Lawder

WASHINGTON, June 30 (Reuters) - The Obama administration sent Congress a draft bill on Tuesday to create a new agency with sweeping powers to impose tough consumer protection rules for banks, mortgage lenders and other financial firms, setting up a summer-long political brawl over the plan.

The legislative language fleshes out a key component of President Barack Obama's goal outlined this month for the biggest revamp of U.S. financial regulation since the Great Depression. For an overview see [ID:nN30436470].

The proposed Consumer Financial Protection Agency aims to protect Americans from abusive practices that helped spark the recent financial crisis, such as deceptive and undocumented mortgage lending, poor disclosures of loan terms, unfair interest rate increases and "fee traps" on credit cards.

But business lobbyists girded for battle over the plan, labeling it an unnecessary layer of new regulation.

"We are going to oppose it in Congress. We are going to fight it tooth and nail," said Thomas Quaadman, executive director with the U.S. Chamber of Commerce.

"As we see it, this continues the patchwork quilt of financial regulation that got us into this crisis in the first place. This is a drastic step backward," Quaadman said.

The 152-page draft bill would consolidate financial consumer protection power in a single agency, stripping this authority from six current regulators, including the Federal Reserve and the Office of the Comptroller of the Currency.

With a single consumer enforcer, the Obama plan aims to prevent "regulatory arbitrage" by firms to seek supervision by the agency with the most lenient rules.

"Under this system you can't escape the appropriate consumer regulation by deciding to organize yourself as a thrift as opposed to a bank, or a mortgage company as opposed to a thrift," said Michael Barr, Treasury assistant secretary for financial institutions. "Consumer protections will be uniform across the board for all financial institutions."

The agency will be focused primarily on credit products such as mortgages, credit cards and other consumer loans, depository savings accounts and payments services such as electronic funds transfers. For more see [ID:nN30438968].

It leaves consumer protection rules for mutual funds and other securities products to the Securities and Exchange Commission and also does not affect the authority of the Commodity Futures Trading Commission.