Associated Press: House panel to empower states to protect consumers
WASHINGTON — A House panel is poised to give states new powers to protect bank consumers from fraud and abuse, a move that would deal a major blow to the financial industry as it struggles to regain its clout on Capitol Hill.
The House Financial Services Committee on Tuesday debated legislation that would ensure states could regulate consumer products like credit cards and mortgages even if they are sold by banks overseen by federal regulators.
Under a proposal by Democratic Reps. Melvin Watt of North Carolina and Dennis Moore of Kansas, banks could ask federal regulators for exemptions from specific state laws. But they would otherwise have to answer to both state and federal laws.
The measure was billed as a compromise between more liberal Democrats like Watt who want to empower states to impose tough consumer protections, and conservative Democrats like Reps. Melissa Bean of Illinois and Ed Perlmutter of Colorado who say subjecting national banks to a myriad of state laws is impractical.
While Perlmutter swung behind Watt's proposal during Tuesday's debate, Bean vowed to fight to limit state oversight when the legislation reaches the floor in coming weeks.
"Rolling back this 140-year-old precedent of federal rules to a system of 50 different state regimes increases costs for training and compliance, which gets passed to consumers," Bean said in a statement.
The panel planned to vote Wednesday on whether to establish the proposed Consumer Financial Protection Agency and whether it should share with states the power to regulate such products as credit cards and mortgages.
The financial industry, which opposes creation of the agency, had gained traction in recent weeks after Democrats agreed to spare most banks and credit unions from additional agency examinations.
Democrats also dropped from the bill a proposal by President Barack Obama that banks be required to offer standardized products and take steps to ensure consumers understand what they are buying. Citing concerns by small neighborhood banks, lawmakers said such requirements would have been too difficult to enforce.
On the issue of state power, banks thought they had found a sympathetic ear among moderate Democrats. But on Tuesday, Perlmutter said he was open to Watt's proposal.
Rep. Maxine Waters, a California Democrat whose home state has been hit hard by foreclosures and mortgage scams, said she did not want to give large national banks a chance to appeal state laws.
"We should not be picking around the edges of consumer protections," she said during Tuesday's debate. "We should be bold. We should be revolutionary."
Republicans opposed the legislation entirely.
"My sense is that we could end up with a patchwork quilt of regulation from state to state that will make it very hard for people to follow and make it very hard for people to do business in," said Rep. Mike Castle, R-Del.
The bill is H.R. 3639.
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