House panel votes to create consumer agency

WASHINGTON – A House committee voted Thursday to create a federal agency to protect consumers from predatory financial products, such as subprime mortgages and payday loans with extremely high interest rates.

The new Consumer Financial Protection Agency is a centerpiece of the Obama administration’s proposed overhaul of financial regulations – and perhaps its most controversial provision.

The House Financial Services Committee approved its creation by a vote of 39-29. Rep. Walt Minnick of Idaho was one of two Democrats to vote against the measure.

The agency would have the power to write consumer protection rules for a number of activities involving loans or credit, with the ability to ban products and business practices it determined were “unfair, deceptive or abusive.”

The agency also would have the ability to examine banks and other companies for compliance with the rules and hand out penalties for violations.

The legislation has strong support from Democrats and consumer and public interest groups, which blame banking regulators for failing to adequately protect consumers as the financial crisis approached.

But the new agency is adamantly opposed by Republicans and banking and business groups, which say that it would hurt consumers by imposing so many new rules that companies would be forced to charge more for loans and credit – or possibly not offer them at all. There also is a sharp philosophical divide, with Republicans charging that the agency would take choice away from consumers and place it in the hands of unelected officials.

The committee approved several amendments clarifying that certain financial activities would not be swept in by the new agency. Stores that sell gift cards, for example, would not be subject to agency oversight unless they control the terms of the cards.

But Democrats beat back numerous attempts by Republicans to water down the agency’s authority.