- The Washington Times - Wednesday, September 23, 2009

The Obama administration said Wednesday it won’t challenge Democratic plans on Capitol Hill to downscale the president’s proposed consumer protection agency, bowing to growing pressure from the banking industry and dissent within Mr. Obama’s own party.

House Financial Services Committee Chairman Barney Frank this week announced he would propose legislation for a Consumer Financial Protection Agency (CFPA) without the administration’s wish that it include a provision to require that banks offer customers “plain vanilla” financial products such as 30-year, fixed-rate mortgages.

The Massachusetts Democrat also said he will call for “non-financial” businesses, such as merchants and retailers, to be exempt from CFPA oversight.

Treasury Secretary Timothy F. Geithner, testifying before the House panel, said he supports Mr. Frank’s efforts to narrow the scope of the proposed agency — a centerpiece of Mr. Obama’s plans to tighten the rules governing financial institutions.

Mr. Geithner called the changes “a pragmatic, helpful way to make sure you have the choice for protection.”

“There are lots of different ways to make sure that you don’t create too much unbridled authority that would be damaging to what’s an important part of our financial system,” he said.

“Exotic” financial products — particularly subprime mortgages that typically offered low introductory payments that later ballooned in size — have been widely blamed for soaring default rates that helped spark last year’s global financial crisis. The administration had wanted to mandate that banks and other mortgage lenders give customers the option of less risky fixed-rate and simple adjustable-rate home loans.

But the proposed “plain vanilla” mandate met strong political resistance amid concerns from financial institutions, Republicans and moderate and conservative Democrats worried that the agency would constitute an overreach of government powers.

Democrats have said they want to pass by the end of the year legislation reforming financial regulations, but they have acknowledged the effort could slip into next year.

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