By Anne Flaherty, Associated Press Writer
WASHINGTON (AP) — Ceding ground amid growing business opposition, the Obama administration on Wednesday signaled a willingness to exempt retailers, real estate brokers, lawyers, auto dealers, cable companies and accountants from oversight of its proposed Consumer Financial Protection Agency.
Treasury Secretary Timothy Geithner told Congress that he supports a plan by Democratic Rep. Barney Frank that would narrow the purview of the new consumer watchdog. His remarks all but guarantee that lawmakers will move ahead with financial reform legislation less ambitious than the plan that President Barack Obama outlined in June.
"There are lots of different ways to make sure that you don't create too much unbridled authority that would be damaging" to industry competition, Geithner told the House Financial Services Committee.
The proposed agency, CFPA for short, is the centerpiece of Obama's broader effort to fix the regulatory system that contributed to last year's market crisis. Among his top priorities is a separate regulator that could reach across various industries to defend financial consumers from fraud and abuse.
The current regulatory system focuses on banks, leaving swaths of the financial industry unsupervised.
Frank, the liberal Massachusetts Democrat who chairs the House panel, was an early and ardent supporter of Obama's approach. But as the weeks passed, giving the financial industry time to launch a multimillion-dollar lobbying effort to kill the legislation, conservative Democrats joined Republicans in questioning whether such an agency would be too burdensome for local banks and businesses.
Frank responded this week with a proposal that includes a blanket exemption for retailers and other industries, even if they offer customer credit or layaway plans. These companies, however, would still be subject to existing credit laws, including the Truth in Lending Act.
Frank's plan also would drop the administration's demand that companies offer standardized financial products, known as the "plain vanilla" option. Obama wanted to ensure that lower-risk loans, such as a 30-year fixed-rate mortgage, could compete with more exotic and costly products.
In addition, Frank would not require that lenders take reasonable steps to ensure their communications with customers are not deceptive. This would put banks in the "untenable position of having to assess whether consumers comprehend the products and services they are being offered," Frank said in a summary of his proposal.
Steve Adamske, a spokesman for Frank, said the House proposal was not a watered-down version of Obama's plan but rather an attempt by Congress to put a finer point on it. There were too many questions among lawmakers about which businesses would be subject to CFPA oversight and how to enforce a mandate on standardized products, he said.
While Geithner called Frank's plan a "helpful, pragmatic" approach, he said he still thinks the agency should be able to monitor any institution that provides credit. If retailers provide credit but aren't subject to the same rules as banks, "all risk and activity will migrate to where there is no protection," Geithner said.
Consumer advocates applauded Frank for retaining the consumer agency despite pressure from the industry and some lawmakers to eliminate it from the legislation.
But Ruth Susswein, deputy director of national priorities at Consumer Action, said some of the exceptions in Frank's proposal "would be a concern of ours."
"Auto dealers and auto financing is something that we would hope would still be included under CFPA," she said.
Travis Plunkett, legislative director for the Consumer Federation of America, said he was wary of Frank's proposal for an oversight board that includes banking regulators that would advise the agency's director.
"The upshot of this is that many, not all, but many of the agencies that dropped the ball regarding abuses and unfair credit would now have an oversight role regarding this agency," he said. "Where are the consumers on this advisory board, by the way?"
Republicans were dismissive entirely of a new regulator.
"We need enforcement of existing regulation, not another layer of regulation or more government bureaucracy," said Rep. Spencer Bachus of Alabama, the panel's top GOP member.
Democrats have vowed to pass reform legislation by the end of the year, although the effort could slip into next year.
In a separate development, Frank told reporters on Wednesday that he believes the government should extend its $700 billion bank bailout fund. The program, known as the Troubled Asset Relief Program, or TARP, is set to expire by the end of the year.
—Associated Press writer Jim Kuhnhenn contributed to this report.
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