Obama wants to establish a Consumer Financial Protection Agency that would regulate credit cards and mortgages and require that banks offer customers low-risk, standardized products.
The Obama administration is trying to reclaim the debate on financial reform amid an aggressive push-back by banks who say the consumer-friendly proposal would add burdensome regulations and cripple their industry.
Treasury Secretary Timothy Geithner was to testify Wednesday before the House Financial Services Committee, where lawmakers want added rules for neighborhood banks.
In his prepared testimony, obtained in advance by The Associated Press, Geithner defended the administration's call for a new government agency dedicated solely to protecting consumers. Rather than adding another layer of bureaucracy, Geithner contended that the agency would streamline oversight because it would assume the duties of other regulators.
"We simply cannot walk away from the worst financial crisis since the Great Depression and not do everything in our power to reform the system that contributed to this breakdown," he said.
President Barack Obama's plan includes sweeping new rules for the financial industry aimed at preventing the kind of chaos seen last year after investment giant Lehman Brothers collapsed and credit markets froze.
With subprime lending considered a primary catalyst in the crisis, Obama wants to establish a Consumer Financial Protection Agency that would regulate such products as credit cards and mortgages and require that banks offer customers low-risk, standardized products.
Some conservative Democrats have joined Republicans in questioning the merits of such an agency and echoed concerns by local banks that it would add another layer of bureaucracy to the system.
Financial Services Committee chairman Barney Frank, a liberal Massachusetts Democrat, has responded with legislation that would create the agency but set stricter bounds than proposed by the administration. For example, the CFPA would not be allowed to require that companies offer standardized products known as a "plain vanilla" option.
The House bill also would drop the administration's requirement that lenders take reasonable steps to ensure their communications with customers are not deceptive and that they are easily understood. Frank says this would put banks in the untenable position of having to determine whether consumers comprehend the products and services they are being offered.
Frank's bill would specifically exempt several industries from CFPA oversight, including retailers, real estate brokers and agents, accountants, lawyers, auto dealers and communications providers such as telecom and cable companies.
With a year having passed since Lehman Brothers' collapse and slight signs of improvement in the economy, bank lobbyists say they are finding it easier to make their case against aspects of Obama's plan.
"The sense is that people are taking a more deliberative approach, and I think that is very beneficial," said Wayne Abernathy, executive vice president of the American Bankers Association.
