Financial reform bill hangs on consumer protection

Liberal senators and advocacy groups cautioned Thursday that they would not support a compromise on financial reform legislation unless it sufficiently empowered a proposed federal regulator to protect consumers of mortgages, credit cards and other loans.

The chairman of the Senate banking committee, Christopher J. Dodd (D-Conn.), and the White House have moved away from insisting on a stand-alone consumer protection agency, which is strongly opposed by Republicans and some moderate Democrats.

Instead, Dodd is attempting to negotiate the creation of a new consumer protection department within an existing agency. One possibility is the creation of a single banking regulator with two divisions — one responsible for protecting consumers, the other for ensuring the safety and soundness of banks.

That idea has raised concerns among Democrats who fear that banks would have the upper hand under such a model. They note that it closely resembles the current arrangement, in which banking regulators responsible for both jobs have often neglected consumer protection.

“If a structure is in place that ensures that financial firms will not be able to deploy tricks and traps while regulators look the other way, that will be a big step forward,” said Julie Edwards, spokeswoman for Sen. Jeff Merkley (D-Ore.), a member of the banking committee. “However, what we have seen in the past is that when the mission is split, so is the attention. And consumer protection tends to take the backseat. We need an agency that will see protecting consumers as its number one priority.”