Democrats iffy on new consumer watchdog

The Obama administration’s push for a new regulatory agency to protect consumers and investors from financial scams was met with surprise reluctance from some key House Democrats on Capitol Hill.

Michigan Democrat Rep. John D. Dingell said he was skeptical of the plan to weaken the Federal Trade Commission’s powers by consolidating regulatory duties now spread over several agencies.

“I am not of the view that maybe we want FTC to lose that [consumer protection] jurisdiction,” he said. “Maybe we want FTC to be around to provide minor dampening of the rascality that’s going to continue to occur in the financial services industry.”

Assistant Treasury Secretary Michael Barr delivered the administration’s pitch for the agency Wednesday before the House Energy and Commerce’s subcommittee on commerce, trade and consumer protection, saying it would streamline regulation and make the financial industry more accountable for its products and actions.

“It is time to put consumer protection responsibility in an agency with a focused mission and comprehensive jurisdiction over all financial services providers - banks and nonbanks,” Mr. Barr said.

The administration says the proposed Consumer Financial Protection Agency would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

But subcommittee Chairman Bobby L. Rush said he wasn’t sure tinkering with the FTC was smart.

“Looking at all reliable indicators, the commission has performed commendably with a small and scrappy staff and abridged powers,” the Illinois Democrat said.

Mr. Barr called the current regulatory system a “fragmented system of regulation designed for failure.” Banks and other financial institutions routinely compete in the same consumer markets yet are subject to different and uncoordinated federal regulators.

The current regulatory system also contains loopholes that allow some financial institutions to shop for the supervisory agency that will be the least restrictive, Mr. Barr said.

“Fragmentation of the supervision of banks and thrifts only makes this problem worse,” he said.

FTC Chairman Jon Leibowitz told the subcommittee that he supports the plan in principle, but has some concerns, including a provision that he said could lead to delays in prosecuting fraud cases.

Mr. Leibowitz added that any new agency must work in concert with existing regulatory agencies, not unilaterally.

“Bad guys do not always act in silos,” he said.

The potential new agency has a key supporter in House Financial Services Committee Chairman Barney Frank, who was expected to introduce legislation Wednesday calling for its creation.

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