A New Push for Obama's Consumer Finance Agency

(page 2 of 2)

Story Tools

"In a financial system that has never been more complicated, it has never been more important to have a watchdog function like the one we've proposed," Obama said. "And yet, predictably, a lot of the banks and big financial firms don't like the idea of a consumer agency very much. In fact, the U.S. Chamber of Commerce is spending millions on an ad campaign to kill it. You might have seen some of these ads—the ones that claim local butchers and other small businesses will somehow be harmed by this agency. This, of course, is completely false—and we've made clear that only businesses that offer financial services would be affected by this agency."

Frank has already tightened the language of the bill to make clear that small businesses in general would not be affected—only those, such as banks, credit-card companies, or mortgage brokers—whose principal business is providing credit would be regulated by the new agency.

But that hasn't been enough to tamp down the still vigorous opposition of the financial-services industry or the Chamber.

Expand the Powers of Current Regulators?

"The Chamber strongly agrees with the President that consumers need more effective protections. Our disagreement is about the best approach to achieve this goal," David Hirschmann, president and CEO of the U.S. Chamber Center for Capital Markets Competitiveness, said in a statement released three hours before the President spoke. He said the powers of existing regulatory agencies should be expanded rather than creating "a massive new federal agency with unprecedented powers over vast segments of the business community."

The White House decision to bring in the heavy artillery—a Presidential speech—comes as debate over the bill moves into a critical phase. Frank is expected to take up consideration of the proposal as early as Oct. 14.

Analysts say momentum for the new agency has slowed as the White House has been heavily focused on health care and other issues. They haven't done enough to counter the opposition, Glaser says. Without a stronger push from the Administration, the bill that emerges could be seriously watered down. Yet it's a critical issue for the White House, as well as for many Democrats who are up for reelection next year.

With many voters still upset about the bank bailouts and executive bonuses for bailout recipients, the Democrats badly want a victory on an issue that will resonate on Main Street.

"They need to be able to go back to the electorate and show some evidence that they've responded to the financial crisis," says Gardner. "How do they do that? Legislation to control the securitization market doesn't ring a bell with the public. Systemic risk? Doesn't ring a bell. But what does ring with the public is consumer protection."

Sasseen is Washington bureau chief for BusinessWeek. Mintz is news editor for BusinessWeek.com in New York.