Obama’s Consumer Agency Imperiled by Senate’s Bipartisan Talks

By Alison Vekshin

Feb. 12 (Bloomberg) -- Republican Senator Bob Corker’s decision to work with Senate Banking Committee Chairman Christopher Dodd may speed passage of a financial overhaul bill at the expense of President Barack Obama’s biggest goal: a standalone Consumer Financial Protection Agency.

Republicans including Corker oppose creating an agency to police credit-card and mortgage lending, the element of Obama’s overhaul plan most opposed by bankers including Jamie Dimon, chief executive officer of JPMorgan Chase & Co. Democrats such as House Financial Services Committee Chairman Barney Frank of Massachusetts said it would protect consumers against abuses that led to the 2007 collapse of the subprime mortgage market.

“Everybody knows that a freestanding agency is a non- starter,” Corker, a Tennessee Republican, said yesterday in a telephone interview after announcing he would work with Dodd.

Disagreement over the consumer agency contributed to the collapse of talks between Dodd, a Connecticut Democrat, and Alabama Senator Richard Shelby, the banking panel’s top Republican, Shelby said on Feb. 5. Obama, who has chided the banking industry for opposing the agency, lobbied Dodd to push for the independent regulator in a meeting last month, a White House official said at the time on condition of anonymity.

‘Hot Potato’

“CFPA is a political hot potato regardless of which party is taking the lead,” Camden Fine, the president of the Independent Community Bankers of America, a Washington-based group representing small banks, said in a telephone interview. “I doubt very seriously whether CFPA will survive as a standalone.”

Elements of the agency may still survive as a Treasury Department unit. Another option would be to set it up as part of a bank regulatory agency, an approach favored by Shelby.

The Dodd-Corker partnership may break a months-long logjam to produce a bipartisan bill in the Senate, where talks led by Dodd and Shelby failed to yield a compromise. Corker’s support also bolsters chances of winning the Republican votes necessary to get the measure through the Senate.

Senate Democrats need Republican backing after last month’s election of Scott Brown in a Massachusetts special election denied their caucus the 60-vote “supermajority” needed to ensure passage of major legislation. Dodd and Corker must also appeal to moderate Democrats, some of whom voted against the House regulatory reform bill that passed in December.

Corker said senators could negotiate on less-controversial issues, including derivatives oversight and systemic risk, before turning to consumer protections.

Less Controversial

“Let’s figure out the things we agree on first and later on tackle the things that are most difficult,” he said.

Corker has been working with Senator Mark Warner, a Virginia Democrat and a member of the banking panel, on the resolution authority piece of the legislation.

For Dodd, the Corker partnership means he can get around Shelby to craft a bipartisan bill without having to go it alone, an approach he tried without success in November. For Corker, maneuvering around Shelby may have political consequences.

“It appears that Senator Corker may be trying to trump his own ranking member,” ICBA’s Fine said. “That generally does not bode well within a caucus.”

Senators are unlikely to include an Obama proposal to bar banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds, according a person familiar with Senate discussions.

The proposal, which Obama dubbed the “Volcker Rule,” is based on an idea offered by ex-Federal Reserve Chairman Paul Volcker, who testified before the Banking Committee last week.

“What people outside of Washington want to see is their lawmakers working to solve the problem,” said Oliver Ireland, a former associate general counsel at the Federal Reserve and now a partner at law firm Morrison & Foerster LLP in Washington.