U.S. Treasury Secretary Timothy Geithner argued forcefully on Wednesday for creating a government agency to protect financial consumers, while giving cautious support to paring back its scope.
Amid stiff resistance by banks and Republicans to the proposed Consumer Financial Protection Agency, Geithner told a House of Representatives committee the new watchdog is needed to fix failures revealed in the financial crisis.
"The need for a dedicated, consolidated consumer protection agency is clear. The current consumer protection system failed," he told the House Financial Services Committee at a hearing focused on the proposed agency.
But Geithner said the Obama administration is open to changes to its proposal that were put forward on Tuesday by the committee's Democratic chairman, Rep. Barney Frank.
The CFPA is designed to be a central agency that would oversee consumer protection laws now vested in several existing agencies, including the Federal Reserve, which have been criticized widely in Congress for their past performance.
Frank wants to kill a controversial part of the CFPA — a provision that would force banks to offer so-called "plain vanilla" versions of financial products, such as mortgages.
In draft legislative language obtained by Reuters, Frank also is calling for exempting a wide range of businesses from CFPA oversight, such accountants, lawyers, securities, commodities, and investment and general insurance products.
"The broad thrust of those proposals look very encouraging and promising to us. And there's nothing in there, at first glance, that troubles me significantly in terms of its practical value," Geithner said of Frank's draft language.
The hearing marked the outset of an intense push in coming weeks by the committee to move forward on financial reform, an issue expected to headline a summit meeting this week of the Group of 20 economic powerhouse nations in Pittsburgh.
President Barack Obama is expected to face pressure at the summit from world leaders to show the United States is making progress on tightening bank and market regulation.
But the president's reform agenda is bogging down in Congress, with lawmakers still far apart on central issues and distracted by other topics such as healthcare reform, even as markets bounce back and the economy show signs of recovery.
"We can't let the momentum for reform fade as the memory of the crisis recedes," Geithner told the committee.
Frank said at the hearing he expects a House vote on financial reform legislation in November. The CFPA is the first big proposal he hopes to handle between now and then.
