Rep. Frank Extracts Vanilla From Consumer Agency

WASHINGTON (Reuters) - The Congress' chief author of financial regulatory reform moved on Tuesday to kill the most controversial part of an Obama administration proposal for a new government watchdog for financial consumers.

Banks would not be required to offer so-called "plain vanilla" versions of financial products, such as mortgages, under draft legislative language drawn up by Democratic Representative Barney Frank and obtained by Reuters.

The draft language comes in the face of opposition among businesses and existing regulators to President Barack Obama's proposed Consumer Financial Protection Agency (CFPA), part of his sweeping program to tighten bank and market regulation.

In opting to delete the "plain vanilla" provision from his version of the proposal, Frank, who chairs the House of Representatives Financial Services Committee, has effectively acknowledged that it was an over-reach by the administration.

The Frank bill must undergo committee review. But it will likely be the vehicle Democrats use for moving the CFPA plan to the full House for a vote, and possibly to the Senate.

In addition to dropping "plain vanilla," the bill explicitly exempts many businesses from CFPA oversight, including securities, commodities, investment and general insurance products; accountants and tax preparers; real estate brokers and agents; lawyers; auto dealers; communications providers; and providers of retirement and pension plans.

Frank's draft emerged after he met on Tuesday with Senate Banking Committee Chairman Christopher Dodd and U.S. Treasury Secretary Timothy Geithner, who is expected to fight for the CFPA in testimony before Frank's committee on Wednesday.

"Our proposal will not create new bureaucracy for banks," Geithner said in prepared remarks to be delivered to the panel that were posted on the committee's website on Tuesday.

The CFPA is designed to be a central agency to handle consumer protection duties now vested in several agencies, including the Federal Reserve. It "will consolidate fragmented consumer authorities into one agency ... which will write rules, oversee compliance, and address violations by non-bank providers, as well as banking institutions," Geithner said.