US House passes sweeping financial overhaul
The House financial overhaul bill covers everything from financial giants to individual consumers. But lobbyists are lined up to fight it, and deals will have to be made with some lawmakers as the Senate considers its own bill.
A year after the Wall Street crisis that erased trillions in savings, House Democrats passed a sweeping overhaul of the US financial system.
The sprawling bill targets the biggest financial groups and the vast, unregulated derivatives market that spawned the crisis. It also creates a new federal agency to raise the profile of consumer protection in Washington.
It’s the first step in a process that now shifts to the Senate, where bipartisan teams recently began work on a draft bill for the Senate Banking, Housing and Urban Affairs Committee. Negotiations are likely to carry on into the new year.
But for the army of interest groups that has flooded Washington with lobbyists and record campaign contributions, the campaign to shape a bill more to their liking only accelerates.
It’s also a legislative battle that is forcing important choices within a highly diverse congressional majority. Without a single Republican vote, Democrats had to pass this bill, including overcoming “poison pill” amendments, by cutting deals within their own ranks – a task far tougher than the final vote, 223-201, suggests.
The top priority for the financial community in this bill was to derail the proposed Consumer Financial Protection Agency – a centerpiece of the Obama Administration’s approach to making consumer protection a more urgent priority for federal regulators.
“The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington,” said President Obama in a statement after the vote. “We have a responsibility to learn from it, and to put in place reforms that will promote sound investment, encourage real competition and innovation, and prevent such a crisis from ever happening again."
The CFPA is endowed with broad powers to regulate financial products sold to consumers, now assigned to the Federal Reserve and other federal banking agencies – and more. The independent agency can mandate regulations, issue subpoenas for documents and testimony, bring civil actions, and refer criminal matters to the Justice Department. Small banks, accountants and tax preparers, real estate brokers, auto dealers, and pawn brokers got a pass.
Plans for a new agency focused exclusively on consumer protection alarmed the business and financial community, which launched ad campaigns charging that the agency would stifle innovation, raise interest rates, cut jobs, and cut choices to consumers.
Freshman Rep. Walt Minnick (D) of Idaho proposed an amendment that would replace the CFPA with a Consumer Financial Protection Council of federal and state regulators from 12 existing agencies.
The Congressional Budget Office has scored the total cost of my council at less than $50 million [over 10 years], compared with $4.6 billion for the proposed CFPA, he told House members during today’s floor debate.
“How many times are we going to create a massive new program to solve a problem?” he asked, citing big bills on climate change and a proposed public option in healthcare, before running out of time.
Speaking in opposition to the amendment, majority leader Steny Hoyer credited Minnick with being “an extremely able member of our body” and representing his district well. Handing responsibility for consumer protection to a council “made up of 12 existing regulators who have already demonstrated that they did not step up to the plate” would undo the bill’s goal to rein in abusive practices, he said. “I appreciate his bringing it up, but I disagree,” he said.
The amendment failed, 208-223, after an unusual 15-minute vote. Some 70 members waited for the last few minutes to cast their votes – typically a sign of a difficult vote with lots of consultation with party leaders. In the end, 33 Democrats, mainly members of the conservative Blue Dog caucus, voted with all Republicans to support the Minnick amendment. (Nineteen of these members also opposed party leaders on healthcare reform.)
Consumer groups hailed today’s House vote, especially the decision to back an independent agency focused on consumer protection.
“Overall this is a landmark step,” says Travis Plunkett, legislative director of the Consumer Federation of America. “One way to think about this is that the era of mindless deregulation is over, when one house of Congress passes broad legislation that imposes regulation on large financial institutions in the way that they treat consumers.”
Finance lobbyists won concessions of their own in the sprawling bill, but noted that the CFPA was a blow.
“Obviously dealing with a bill this big there are no total victories, but it was pretty good day,” says Stephen Verdier, chief lobbyist for the Independent Community Bankers Association of America. “The vote on the Minnick amendment sends a message to the Senate that the House is pretty evenly divided.”