The Obama administration's plan to form a new Consumer Financial Protection Agency, a central part of its bold regulatory reform agenda, sailed onto the shoals of congressional delay on Tuesday.

Under attack from banking and business lobbyists, the CFPA proposal will not be drafted and voted on as planned next week at the committee level, said the U.S. House of Representatives Financial Services Committee handling the measure.

Instead, a bill-drafting session will be held in September, after Congress' summer recess, giving lawmakers more time to take a closer look at it, said Democratic Representative Barney Frank, committee chairman and an administration ally.

There's more work to be done. I don't know where the votes are. The banks have done some lobbying. I think it needs to be refined, Frank told reporters after a hearing.

The U.S. Chamber of Commerce and other business groups wrote on Wednesday to Frank, pleading for time and warning of dangerous, unintended consequences from the CFPA proposal.

Delay is routine on Capitol Hill, but it could be lethal to President Barack Obama's financial regulation reform campaign, an ambitious effort already being overshadowed by health care.

As the economy and the troubled world financial system stabilize, however slowly, the administration's push to tighten the rules for banks and the capital markets, already an uphill climb, will only get more challenging, analysts said.

Congress must not buckle under the pressure of the U.S. Chamber and big banks, said Anna Burger, secretary-treasurer of the Service Employees International Union, which helped Democrats win control in 2008 of the White House and Congress.

Big banks and CEOs didn't mind quick action from Congress when they were begging for billion-dollar bailouts, she said.

Now that they're flush with cash, they want to stifle recovery for the rest of us.

OBAMA SEES 'MAJOR BATTLE'

Interviewed on NBC's Today show, President Obama said his reform agenda will be a major battle in Congress.

Part of what really gets me frustrated is when I hear that some of the banks are resisting the idea of a consumer finance protection agency that we've put forward, he said.

This is going to be a major battle on the Hill because a lot of these banks have a lot of influence, he said.

On other fronts, the administration made headway on Tuesday, moving closer to reshaping the $92-billion student loan market and the $5-billion credit rating agency industry.

Handing Obama a procedural victory, the House Education and Labor Committee approved a White House-supported bill that would fundamentally change U.S. higher education finance, shielding it from Wall Street's wild ups and downs.

The bill, which will go next to the full House for a vote, would kill the giant Federal Family Education Loan Program (FFELP), the mainstay of a government-backed student loan business that once furnished handsome profits for lenders such as Sallie Mae, Student Loan Corp, JPMorgan Chase & Co and Bank of America. Citigroup Inc owns an 80 percent stake in Student Loan Corp, regulatory filings show.

Democrats have long wanted to close FFELP, which they view as too costly and an unreasonable lender subsidy program. Republicans said the bill would hurt the lending industry.

Today's vote is a vote to put students before banks, said Representative George Miller, Democratic chairman of the education committee that voted 30-17 in favor of the bill.

Shares in Sallie Mae closed down 2.9 percent at $9.51.

CREDIT RATERS TARGETED

On another issue, the Treasury Department on Tuesday sent a draft bill to Congress that would rewrite the regulations for credit rating agencies, such as Moody's Corp MCO.N>, Standard & Poor's, a part of McGraw Hill and Fitch Ratings, part of France's Fimalac SA.

Widely criticized for their role in the financial crisis that has undermined world economies for months now, credit rating agencies would be barred from consulting for companies whose credit-worthiness they are evaluating, under the bill.

The Securities and Exchange Commission would get new powers to regulate credit raters and companies that hire them would have to disclose when they go ratings shopping.

Frank said it was overwhelmingly likely that a bill will be offered in Congress to repeal legal requirements that now require usage of the services of credit rater. There are a lot of statutory mandates that people have to rely on credit rating agencies. They're going to all be repealed, he said.

Shares in Moody's closed down 6.3 percent to $26.80 on the New York Stock Exchange.

Separately, Frank's committee also said it had postponed a drafting session for an Obama-backed bill to give shareholders a louder voice in setting executive pay levels, while banning pay schemes that encourage excessive risk at financial institutions. That session has been moved to next week.

The leadership, I think, may want to put (executive compensation) on the floor. So we have to give a little more attention to that, Frank said.

In addition, he said upcoming legislation on regulating over-the-counter derivatives markets would probably contain a provision to ban naked credit default swaps.

There's some opposition to that ... But that's where we are, yes, Frank said, echoing comments from earlier by House Agriculture Committee Chairman Collin Peterson.

A naked credit default swap is a CDS for which a trader or investor does not hold the underlying asset being insured, such as a bond.

Frank said a comprehensive bill on OTC derivatives regulation would be an issue for Congress in the fall.

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