Planned Consumer Protection Agency Dies in DC

WASHINGTON (TheStreet) — Details of the latest financial regulatory reform compromise suggest that Congress may shift some powers around without making any significant changes to the status quo.

In perhaps the most ironic twist, a proposed Consumer Financial Protection Agency has been the most contentious item, held back by special interests and financial lobbyists. Though consumers have suffered the most and the longest of any party to the financial crisis, the entity charged with protecting them may become a "watchdog" that's wrapped into another agency, whose decisions could be swatted down by other regulators.

The regulatory reform bill started off over a year ago, as a proposal by the Obama administration. A revised version passed through the House of Representatives in December, but the Senate has been locked in a partisan battle over a few items, the CFPA being the stickiest spot.

Other issues include whether to have the Federal Reserve take on more responsibility for risk management, since it failed to act while the housing bubble inflated, how to deal with banks considered "too big to fail" and whether to include the so-called "Volcker rule" which would limit banks' activities if they held consumer deposits.

Sen. Chris Dodd (D-Conn.), who chairs the Senate Banking Committee, became so frustrated with the divisions that he decided to start from scratch and work out a new bill entirely. Dodd is retiring this year and appears to be set on passing some type of meaningful reform, even if it isn't ideal.

A summary of the bill was released on Friday, and the consensus reaction from the media so far seems to be it's a watered-down compromise that shuffles responsibility and adds layers of bureaucracy.

The CFPA would become a Bureau of Financial Protection, housed within the Treasury Department. It would have an independent director chosen by the president, and would need to consult with other regulators before issuing rules, and explain those negotiations publicly before any rules are made official. The bureau would have less enforcement power than the initially proposed agency, and could only oversee banks with more than $10 billion in assets.