Legislation to create an agency designed to protect consumers from abusive and deceptive loans including credit card contracts and mortgages, moved another step closer to passage on Thursday.  The House Financial Services Committee voted 39 to 29, mostly along party lines, to send HR 3186, the Consumer Financial Protection Act (CFPA) to the full House for consideration.

In a separate vote, the Committee also moved up the implementation date for a credit card law that had passed earlier to December 1.  The regulations which govern, in part, the way interest rates can be raised, were originally set to go into effect in mid-February but there has been a storm of consumer complaints as the banks have rushed to hike rates ahead of the deadline.

CFPA, which has been fought furiously by banks and credit card companies, will establish an independent executive branch agency to regulate the provision of consumer financial services and products.   It will incorporate the consumer protection functions of the Federal Reserve, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, Office of Comptroller of the Currency, the Federal Trade Commission and the National Credit Union Administration.  Many of these regulators have been faulted for a lack of oversight of financial institutions prior to last year's financial collapse.

The bill passed the house with a compromise on two major points.  Many legislators with ties to the banking industry had pushed for the legislation to preempt all state regulations which are often stronger or more forcefully pursued by local authorities.  The Obama Administration had strongly fought this preemption, wanting the states to retain full enforcement authority.  Instead the bill will authorize the Office of the Comptroller of the Currency which regulates national banks to intervene only if it found that state law "significantly" interfered with federal policies.

The second compromise was the exclusion of a number of merchant categories from the law.  This came in response to an aggressive advertising campaign by the U.S. Chamber of Commerce which claimed that the law would cover "butchers, bakers, and teachers."   The Committee inserted language specifically excluding merchants, retailers, and other nonfinancial businesses even when sales involved the provision of credit.  

Financial Services Committee Chairman Barney Frank (D-MA) said he was optimistic that the bill would pass the full House and Senate by the end of 2009 or early in 2010.  President Obama who has strongly banked financial regulation has requested the bill on his desk by the end of the year.

In a statement issued by the White House shortly after the vote the President praised the Committee saying, "This bill has now passed a major hurdle, and this step sends an important signal to the American people that we will not stand by and allow big financial firms and their lobbyists to mobilize against change."

Harvard Law Professor Elizabeth Warren who serves as Chair of the Congressional Oversight Panel for the Troubled Assets Relief Program has been a public face of the legislation, appearing on many news shows to urge its passage.  At a press conference after the vote she said, "... when I first came to Washington with the idea of this agency, everyone told me: "The banks always win. Quit now, because the banks always win." They didn't win today. Chairman Frank has done something that is historic here... I never thought I would see this day, so I am delighted."

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