The Treasury Department is warning the financial services industry that it will not back down from its proposal to create a new consumer protection agency, even while lobbyists build a warchest and strategy to defeat the plan.
The new agency, part of a wider revamp of U.S. financial rules proposed by the Obama administration, would have the power to regulate products like mortgages and credit cards in what advocates have likened to a safety commission for financial products.
The proposal, detailed in a 152-page draft bill sent to Congress last week, has drawn fire from financial service companies, but it has also galvanized consumer groups, setting the stage for a tough legislative battle.
On Thursday, a senior Treasury Department official told members of the American Bankers Association that President Barack Obama is committed to the Consumer Finance Protection Agency and will fight for its passage through Congress.
Michael Barr, Treasury assistant secretary for financial institutions, told ABA members the current regulatory system has failed to protect the American people and needs to be fixed in a fundamental way, said one person who heard the call.
Officials hope that a new system of regulation will discourage the kind of high-risk lending that spurred a runaway housing market for five years and ended in the current bust of record foreclosures.
Mortgages with low early payments were popular in once-hot housing markets, but many home buyers could not shoulder the hidden costs of those loans.
Our society has a system to protect us from exploding toasters, but not exploding interest rates, said Brian Kettenring of Acorn, a national community organization.
Barr plans to lead regular meetings with industry and community leaders to explain how the Consumer Financial Protection Agency would work, a Treasury spokesman said.
'HARRY AND LOUISE' REDUX?
Last week, the administration sent Congress a 152-page draft bill that would consolidate in a single agency financial consumer protection powers now spread among a number of regulators.
Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee, has said that he expects a bill to clear his panel before Congress takes its summer recess starting August 3.
Meanwhile, a coalition of financial trade groups is brainstorming on how to sink the agency, which they argue will create new costs and red tape while doing little to help consumers.
The consumer is our customer. We don't take a backseat to anyone who is interested in protecting the consumer, said Bill Himpler, executive vice president of the American Financial Services Association.
The trade group is coordinating opposition to the consumer agency as the industry mulls using advertising and grass-roots political tactics to turn lawmakers against the idea.
Last week, public relations firms hatched an idea to mimic Harry and Louise ads that helped sink President Bill Clinton's health care plan in the early 90s. In those spots, a middle-class couple discussed how their interests could be hurt by a government-run health insurance plan.
Still, such a direct attack on a key priority for the president makes some trade groups nervous.
The National Association of Realtors attended an early brainstorming session, but will not join a coalition opposing the consumer agency, a spokeswoman said.
We did attend the meeting ... However we declined to contribute or participate in their campaign, said Mary Trupo. It is our belief that (the agency) needs to move cautiously forward in creating its mission.
Meanwhile, a coalition of nearly 200 labor and consumer organizations have formed a pressure group encouraging Congress to ratify the Treasury's plans.
The next few weeks could see the two sides battle with different tactics as the financial industry tries to bankroll media campaigns and consumer advocates use direct action.
If banks wanted to give us something to advocate and stir public anger, they have handed it to us on a silver platter, said Bruce Marks, founder of the Neighborhood Assistance Corporation of America, which has been known to hold protests outside the homes of wealthy bank executives.
(Reporting by Patrick Rucker; Editing by Jan Paschal)