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Hijack: Bank-Friendly Dems Revolt On Financial Regulatory Reform

The House Rules Committee released a very tight rule, with basically no amendments, for the regulatory reform effort being headed up by Barney Frank. This did not please members of the New Democrats, who are notoriously friendly with banking lobbyists. So they threatened to vote against the rule. This is from Congress Daily (sub. reqd.):

Members of the New Democrat Coalition Tuesday warned House leaders they will consider voting against a rule for debate on an overhaul of the nation’s financial regulatory system if Democratic leaders do not allow floor votes on amendments they are backing — ones which make the measure more palatable to K Street.

“The New Dems feel strongly that a regulatory reform bill should be considered under an open and balanced rule,” said a Democratic source. The source added that members of the 68-member coalition would “no-vote” if the rule on the bill “doesn’t live up to the commitments that have been made.” It was uncertain how many members would follow through on such a threat Tuesday night.

Apparently, enough of them would have followed through to take down the bill, at least in the eyes of the House leadership, which delayed the bill today, clearly fearing it couldn’t pass:

A group of Democrats friendly to the interests of Wall Street forced a delay in consideration of the landmark financial regulatory reform bill scheduled to hit the House floor on Wednesday, Financial Services Committee Chairman Barney Frank (D-Mass.) told reporters in the Speaker’s lobby.

Frank accused the New Democrat Coalition of blocking the bill because they are being prodded by big banks to abolish the Consumer Financial Protection Agency and to allow major financial institutions to avoid state laws tougher than federal regulations. A Democratic leadership aide confirmed that centrist and conservative Democrats are threatening to vote no on the bill, leaving the caucus short of the needed votes.

“The big banks in particular are trying to get more preemption,” said Frank. “It’s a state-consumer battle with the big banks. We want compromise. They want to offer an amendment that makes it easier to preempt state consumer laws.”

Pre-emption on Consumer Financial Protection Agency laws is among the major sticking points. Melissa Bean has wanted to allow banks this privilege for a while now – her former chief of staff was lobbying on it. But pre-emption lost in the Financial Services Committee, preserving the ability for state regulators to challenge banking practices. Bean’s modified amendment would give the Office of the Comptroller of the Currency the ability to determine whether federal policies are enough to protect consumers.

At the time, liberals said they would oppose the overall bill if Bean’s amendment passed, and she backed down, amid White House pressure. Bean claimed to Congress Daily that she got a guarantee from Frank to get her amendment a vote, but Frank has never said that, at least not publicly.

There’s another amendment sought by the New Dems by Rep. Walt Minnick (D-ID) which would effectively kill the CFPA altogether, and replace it with a regulatory council. Liberals would probably completely revolt from the bill if that happened.

There are actually liberal amendments that some want considered on the floor, including one from Mel Watt (D-NC):

On another issue, Rep. Melvin Watt, D-N.C., has offered an amendment that
would clarify an auto dealer exclusion from CFPA, closing a loophole that could allow dealers to operate payday lending facilities or buy-here, pay-here financing without oversight from the agency.

Cora Ganzglass, legislative director for the National Association of Consumer Advocates, said the Watt amendment was insufficient because it would provide a carve-out for the industry to allow it to be regulated by the FTC and the Fed. Consumer groups were hoping for stronger language despite going up against the politically potent National Automobile Dealers Association, which has considerable influence in the House.

The auto dealer exemption is one of the biggest giveaways to industry in the bill, although there are others. Still, the bill would provide for an audit of the Federal Reserve, create a Consumer Financial Protection Agency, lower leverage limits, and do a whole bunch of other things to the financial industry beyond what was thought possible given this Congress and the extreme lobbying power around the issue.

It’s unclear what the next move will be. Ryan Grim reports that “leadership and opponents of reform within the caucus are negotiating their way out of the deadlock.”

In the meantime, House Republicans are strategizing to kill the bill outright, with lobbyists saying that “Frank and the Democratic majority are ruining America, ruining capitalism.”

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David Dayen

David Dayen