June 10, 2010 / 6:05 PM / 8 years ago

Factbox: Some financial reforms missing from U.S. legislation

WASHINGTON (Reuters) - The U.S. Congress is in the final stages of finishing a major financial regulation reform bill, which has slowly narrowed over more than a year of debate, with some ambitious proposals slipping from view.

Mainly due to insurmountable opposition from Republicans, bank lobbyists and regulatory agencies protecting their turf, some changes that looked achievable a year ago at the height of the financial crisis are no longer being discussed.

Here are some reform proposals being left on the shelf:


The two giants of U.S. mortgage finance -- Fannie Mae and Freddie Mac -- need a major overhaul. That much both political parties in Congress can agree on.

But the consensus pretty much ends there.

The Obama administration has said it will sketch out a reform plan for the two agencies soon, and House Financial Services Committee Chairman Barney Frank is beginning new discussions on the issue among his panel’s members.

But fixing Fannie and Freddie is such a contentious problem that Democrats set it aside for the time being, excluding it from both the House and Senate regulation reform bills.

Fannie and Freddie together own or guarantee half of all U.S. mortgages. Both were seized by the U.S. government and put into conservatorship in September 2008.


A bold idea offered last year by Senate Banking Committee Chairman Christopher Dodd was to consolidate into one super-agency the bank regulation duties now scattered across several federal bureaucracies.

That idea is dead, after months of lobbying by banks and by the agencies that would have been superseded, including the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corp.

Dodd wanted to create a new agency, the Financial Institutions Regulatory Administration, to supervise all banks and put an end to today’s patchwork system stitched together over decades.

The House bill never contemplated such a plan.

The modest bill coming before a House-Senate conference committee this week changes little, other than closing the Office of Thrift Supervision -- a small step toward streamlining, but far short of Dodd’s plan.


The Securities and Exchange Commission and the Commodity Futures Trading Commission regulate such closely linked markets that critics have long argued the two agencies should be one.

When the Obama administration took over in 2009 and the financial crisis was at its peak, a CFTC-SEC merger looked possible. But as Congress began hammering out a politically realistic set of reforms, the merger slipped from view.

Neither agency wanted it since it would threaten jobs and turf. Financial services industry lobbyists were divided.

In the end, legislators said, in a perfect world the two agencies would be combined, but that just isn’t Washington.


Under present law, bankruptcy courts may reduce many forms of debt for struggling borrowers -- including loans for a boat, car, vacation home or family farm -- but not for a primary residence.

In a proposal backed by homeowner activists and many Democrats, bankruptcy law would be rewritten to allow judges to change the terms of mortgages for distressed borrowers in bankruptcy court. Known as mortgage “cramdown,” the idea is opposed by the banking industry and Republicans.

The House approved a “cramdown” measure in March 2009 over the objections of Republicans, but it died in the Senate.

Cramdown could help stem U.S. home foreclosures, its advocates say. Opponents say it would raise costs for everyone and divert capital from the mortgage debt market.


Some congressional Democrats want to cap credit card interest rates, but the idea is not included in either of the main House or Senate legislative packages.

Another bill offered in the Senate last year would cap rates at 36 percent for all consumer credit -- mortgages, payday loans, car title loans -- not just credit cards. It is not included in the two main legislative packages either.

Some states have usury laws. Both the main House and Senate reform packages have provisions saying how often and how far federal regulators may preempt, or block, state consumer protection laws, which can affect state usury statutes.

Reporting by Kevin Drawbaugh; Editing by Leslie Adler

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