WASHINGTON (Reuters) - Senator Christopher Dodd, chief negotiator for the Democrats in talks on a bipartisan financial reform bill in the U.S. Senate, on Thursday called for creating a new government “office” with the power to craft and enforce rules to protect consumers.
In a statement that conspicuously omitted any call for an independent agency on consumer protection, Dodd said, “A lot of attention is being paid to what address the new consumer watchdog will have, but the critical question is ‘Will this office have the authority and independence it needs?’”
President Barack Obama’s proposal last year to create an independent Consumer Financial Protection Agency (CFPA) has been the main impediment for weeks to a Senate compromise on financial regulation reform legislation.
No compromise bill will be unveiled this week, a committee aide told Reuters late on Thursday.
Dodd said earlier he had not yet reached an agreement with Republicans. It was unclear when that might come and whether a summary of the deal would be released before a formal bill.
Banks, credit card firms and mortgage lenders would be subject to regulation by the CFPA, which could directly threaten their profits if it moved to force sharp reductions in fees and interest rates charged to financial consumers.
Republicans oppose making the watchdog an independent agency, but have said they could live with it as a unit of a banking regulatory agency. Dodd has been discussing putting it in the Federal Reserve as a possible compromise.
But some Republicans also want the agency in which the watchdog is housed to have veto power over any rules it writes — a position that Democrats have been unwilling to accept.
“I am pushing for an office with an independent head, appointed by the president and confirmed by the Senate; that has an independent budget to do its work; autonomy to craft rules, and an ability to enforce those rules,” Dodd said.
Sources told Reuters on Wednesday Senator Richard Shelby, the banking committee’s top Republican, was open to possibly putting the CFPA inside the Fed.
Shelby told reporters on Tuesday that whichever agency is the CFPA’s parent must “absolutely” have veto power over rules the consumer watchdog might write. “Otherwise you are just creating something that’s going to run amok,” he said.
Wherever the watchdog ends up, it would consolidate consumer protection duties now scattered across several agencies, including the Fed.
“In the past, consumer protections were under the control of the Federal Reserve System and other regulators,” said Dodd, who in November called the Fed’s record on consumer protection over many years “an abysmal failure.”
On Thursday, he said things have changed. “While we haven’t settled on the Fed as the place for this to be housed, there’s a vast difference between what is being suggested today and the status quo that failed so miserably in the past,” he said.
Separately, in an interview with Bloomberg TV, Dodd said regulators have “got to” have powers to enforce the kinds of barriers against proprietary trading by banks that are suggested by the “Volcker rule,” another Obama proposal, if not the exact rule itself.
“If someone is involved in proprietary trading and they’re also getting an implicit or explicit guarantee of taxpayer money if they fail, I mean, the answer’s pretty obvious.
“But that’s not a job for us to write, in my view. ... I can’t write regulations. ... That’s why we have talented, good people in these agencies to do that and then quickly report back to Congress,” Dodd said.
Editing by Andrew Hay