Consumer protection bill advances

A key House committee on Thursday voted to approve the creation of a federal agency that backers say will give consumers new protections against abusive credit card rate and fee increases, and deceptive mortgage practices that helped fuel the nations economic woes.

While the agency still has a long path to passage, the House Financial Services Committee action gives a big boost to one of President Obama’s top reform priorities.

The bill also aims to strengthen transparency laws to give consumers a clearer understanding of the complex fine print that is part of nearly every financial product.

The committee’s action is a serious blow to financial industry groups, who say the measure would create an unnecessary bureaucracy that would go far beyond consumer protection and could hurt the economy.

Mr. Obama was quick to praise committee Chairman Barney Frank, Massachusetts Democrat, for ushering the bill through his panel.

“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,” said Mr. Obama in a statement released minutes after the vote.

Although the bill still faces hurdles in the full House and Senate and stiff opposition from Wall Street, Mr. Frank said the vote should provide momentum for the bill going forward and predicted it would not be watered down as it moves through the legislative process.

“Often times the committee is the most difficult part of the process,” Mr. Frank told reporters after the vote.

The House Financial Services Committee voted 39-29 to support the bill and its proposed Consumer Financial Protection Agency. Only two Democrats - Reps. Travis W. Childers of Mississippi and Walt Minnick of Idaho - voted against the measure. Rep. Michael N. Castle of Delaware was the lone Republican to vote yes.

The measure now goes to the full House floor for a vote. The Senate also has yet to act on the bill.

Wall Street has lobbied hard against the bill, saying that tighter controls and more regulations will stifle investments and innovation in the financial sector and possibly slow down the flow of capital - a scenario blamed for the recent economic crisis.

“We agree with the goal of protecting consumers, but the large increase in government oversight is not the most effective way to achieve this goal,” said Scott Talbott, a spokesman with the Financial Services Roundtable, which represents some of the nation’s biggest financial-services firms.

The U.S. Chamber of Commerce, which has dedicated more than $1 million to defeat the legislation, says the bill doesn’t address the fundamental flaws in the existing regulatory structure.

“After several rounds of revisions, this bill remains a complicated and confusing maze of unclear regulatory standards and ill-defined terms,” said David Hirschmann, president and chief executive of the chamber’s Center for Capital Markets Competitiveness.

But consumer groups also hailed the administration and House Democrats for pushing the bill forward.

“The action by the House Financial Services Committee marks a major turning of the tide against decades of big banks’ systematic dismantling of the financial protections put in place after the Great Depression,” according to a statement from Americans for Financial Reform, a consumer rights coalition.

Republicans argue that fixing problems within the current regulatory agencies - not creating a new agency - would be a better route to reforming the system.

The proposed agency also has received resistance from some financial regulators that stand to lose power if the bill becomes law. The new agency would consolidate many regulatory duties that are spread over several agencies, such as the Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.