Some, but not all, cheer Dodd's consumer protection proposals

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WASHINGTON _ Consumer advocates love the new consumer protection agency included in the financial industry overhaul that Senate Banking Committee Chairman Christopher Dodd, D-Conn., proposed last week.

"It's quite strong," said Edmund Mierzwinski, the consumer program director at U.S. Public Interest Research Groups, a federation of liberal state research groups. "A consumer-friendly bill," added Chuck Collins, a senior scholar at the Institute for Policy Studies, a liberal research center.

While their side has momentum and political clout right now, banking and business interests — as well as conservatives — are raising serious reservations, however.

Dodd's proposal, which is nearly identical to consumer-protection terms in Democratic legislation that's pending before the House of Representatives, would create a strong, independent Consumer Financial Protection Agency to oversee the sale and use of most financial products, such as mortgages and credit cards.

Dodd hopes his committee, which has 13 Democrats and 10 Republicans, will begin writing a bill early next month.

Douglas Elliott, a fellow in economic studies at Washington's Brookings Institution, a center-left research center, liked the idea of a separate consumer financial protection agency, but with reservations.

"Existing regulators did a terrible job," he said. "And you can't just say OK, we'll change the people. There were also structural reasons" for the industry's problems.

Financial regulators tend to look more at preserving the safety and soundness of financial institutions, he said, and that often conflicts with consumer interests. However, Elliott added, a separate consumer agency could overreach and "sometimes over-regulate to protect consumers from all risks."

Opponents of a separate consumer agency agreed.

"The current debate should not be about more regulation, but smarter regulation," said David Hirschmann, the U.S. Chamber of Commerce's president for capital markets.

American Bankers Association spokesman Peter Garuccio argued it's important for the same regulator to be able to consider an institution's safety and soundness as well as consumer interests.

"It's not a good idea to separate the two," he said. "Otherwise, you'll have this new (consumer) agency restricting or mandating practices without a complete picture of how it impacts the safety and soundness of an institution."

Dodd's proposed new consumer agency, which would replace the maze of regulators that deal with consumer protection now, would be led by a five-member board with an independent director.

The agency would have authority not only over financial institution practices that affect consumers, but also over the shadow banking industry, such as mortgage brokers and payday lenders.

States would be permitted to enact even tougher laws.

Lauren Saunders, the managing attorney of the National Consumer Law Center's Washington office, said the agency "really consolidates pieces of consumer protection (offices) and puts it into one place."

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