UPDATE 3-Rep. Frank introduces U.S. consumer agency bill

(Adds Pelosi comment, paragraphs 6-7)

By Karey Wutkowski

WASHINGTON, July 8 (Reuters) - The powerful chairman of the U.S. House of Representatives Financial Services Committee on Wednesday introduced legislation to create a new consumer financial protection agency that would strip some powers away from current regulators.

Representative Barney Frank's legislation, which was introduced with 12 Democratic co-sponsors but no Republicans, is largely similar to the Obama administration's proposal, with a few small changes.

"Recent reports about the lack of mortgage modifications and increases in various fees only reinforce the need for this bill, which is already very clear," Frank, a Democrat, said in a statement.

The administration has proposed an independent agency that would have broad power to write and enforce rules on financial products such as credit cards and mortgages.

The proposed new consumer agency has drawn sharp criticism from the financial services industry and concern from current bank regulators, but is a top priority for Democratic lawmakers and the Obama administration.

"This is the right thing to do for all the consumers who lost their homes and who were subject to abusive mortgage lending and credit card practices," House Speaker Nancy Pelosi said in a statement endorsing Frank's legislation.

Despite a lack of Republican co-sponsors, Pelosi vowed that Congress would work in a bipartisan manner and with the Obama administration to move forward on the legislation.

Frank's legislation makes a few tweaks to the administration's plan. The administration's proposal almost fully strips the current bank regulators' consumer protection roles, but Frank's bill would preserve their ability to enforce the Community Reinvestment Act. That act encourages banks to make loans in disadvantaged communities.

The bill to create the consumer agency will likely be among the first pieces of the administration's financial regulatory reform overhaul to move through the House. Frank said on Wednesday that his committee will polish legislative language on the proposal by the end of July.

President Barack Obama last month unveiled a sweeping package of reforms to rewrite the rules for banks and capital markets in response to a severe financial crisis that has dragged down economies worldwide for more than a year.

The creation of a new agency to protect consumers from risky financial products has populist appeal, while other technical reforms such as increased regulation for over-the-counter derivatives are harder for lawmakers to explain to their constituents.

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 behind closed doors. They believe it makes little sense to split consumer protection from government oversight of the banking business' health.

"I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking," Frank said in his statement.

Obama wants to enact new laws on regulation reform by the end of the year. Democrats have consistently said that could be done, although some analysts foresee debate on the matter running into 2010. (Reporting by Karey Wutkowski; Editing by Matt Daily and Richard Chang)