The House Financial Services Committee voted Wednesday to give states the power to regulate national banks on consumer-protection issues unless federal regulators intervene.
The measure, an amendment to a broader bill calling for the establishment of a new federal consumer protection agency, was approved by voice vote. It was opposed by the banking industry, which wants to avoid having to comply with myriad state laws.
Many Republicans criticized the provision, saying it would cause unnecessary costs and confusion for banks if they were required to adhere to dozens of state rules and regulations instead of a unified set of national laws.
The measure was offered by Democratic Reps. Melvin Watt of North Carolina and Dennis Moore of Kansas, who portrayed it as a compromise because it would allow federal regulators to exempt banks from state laws on a case-by-case basis.
The Obama administration and committee Chairman Rep. Barney Frank, Massachusetts Democrat, had pushed for stronger states’ rights.
Rep. Melissa Bean, Illinois Democrat, had raised concerns about the prospect of giving states more rights in regulating national banks, but was absent from Wednesday’s committee markup of the bill owing to a case of swine flu in her family.
“I have consistently advocated for robust national standards that create a blueprint towards international cooperation,” Mrs. Bean said Tuesday. “Rolling back this 140-year-old precedent of federal rules to a system of 50 different state regimes increases costs for training and compliance, which gets passed to consumers.”
The committee was on its way Wednesday to pass the overall bill to create the Consumer Financial Protection Agency, which is designed to protect consumers against abuses such as unscrupulous mortgage deals and excessive credit card rates.
The administration has pushed hard for the agency, which would strip consumer regulatory powers from the Federal Reserve, which Mr. Frank has accused of “lackadaisical” enforcement.
Republicans and financial institutions argue that tighter controls and more regulations would stifle investment and innovation in the financial world and possibly slow down the flow of capital through the markets, a scenario blamed for last year’s Wall Street meltdown.
But Mr. Frank spurned a White House demand that the bill require banks to offer “plain vanilla” financial products, such as 30-year fixed-rate mortgages, giving the banking industry at least one victory in its fight with the administration over how to reform the financial-services sector.
The administration had pushed for the mandate to counter the proliferation of “exotic” financial products - particularly the subprime mortgages that led to soaring default rates and were a major factor in last year’s financial crisis.
A “plain vanilla” mandate could cause “needless additional regulatory burdens and costs,” Mr. Frank said.
• Sean Lengell can be reached at slengell@washingtontimes.com.
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