Plan limits reach of new consumer protection oversight

WASHINGTON --- Ceding ground amid growing business opposition, the Obama administration on Wednesday signaled a willingness to exempt retailers, real estate brokers, lawyers, auto dealers, cable companies and accountants from oversight of its proposed Consumer Financial Protection Agency.

Treasury Secretary Timothy Geithner told Congress that he supports a plan by Democratic Rep. Barney Frank that would narrow the purview of the new consumer watchdog. His remarks all but guarantee that lawmakers will move ahead with financial reform legislation less ambitious than the plan that President Obama outlined in June.

The proposed agency, CFPA for short, is the centerpiece of Mr. Obama's broader effort to fix the regulatory system that contributed to last year's market crisis. Among his top priorities is a separate regulator that could reach across various industries to defend financial consumers from fraud and abuse.

The current regulatory system focuses on banks, leaving swaths of the financial industry unsupervised.

Mr. Frank, the liberal Massachusetts Democrat who is the chairman of the House panel, was an early and ardent supporter of Mr. Obama's approach. But as the weeks passed, giving the financial industry time to launch a multimillion-dollar lobbying effort to kill the legislation, conservative Democrats joined Republicans in questioning whether such an agency would be too burdensome for local banks and businesses.

Mr. Frank responded this week with a proposal that includes a blanket exemption for retailers and other industries, even if they offer customer credit or layaway plans. These companies, however, would still be subject to existing credit laws.

Mr. Frank's plan also would drop the administration's demand that companies offer standardized financial products, known as the "plain vanilla" option. Mr. Obama wanted to ensure that lower-risk loans, such as a 30-year fixed-rate mortgage, could compete with more exotic and costly products.

In addition, Mr. Frank would not require that lenders take reasonable steps to ensure their communications with customers are not deceptive. This would put banks in the "untenable position of having to assess whether consumers comprehend the products and services they are being offered," Mr. Frank said.