Consumer watchdog's 'draconian' powers scaled back

WASHINGTON -- Banks could appeal decisions by a new watchdog agency under a scaled-back version of an Obama administration plan to protect consumers from financial abuses.

The Consumer Financial Protection Agency proposal has met fierce resistance from the financial industry and Republicans such as Texas Rep. Jeb Hensarling, who warned Wednesday that the agency would have "draconian" powers.

So Rep. Barney Frank, chairman of the House Financial Services Committee, trimmed the agency's authority in a bid to pick up support for the legislation. In a note to fellow committee Democrats, the Massachusetts lawmaker said he wanted to:

•Create a "disinterested governing panel" where banks could appeal "contradictory or conflicting" rulings from the consumer agency and traditional bank regulatory agencies such as the Federal Deposit Insurance Corp.

Frank's proposal is designed to counter critics who say it's a mistake to separate consumer regulation from regulation designed to keep banks from taking on too much risk. But Travis Plunkett, legislative director of the Consumer Federation of America, worries that banks could use the appeals board to thwart the consumer agency and challenge decisions they don't like; better, he says, to let consumer and bank regulators decide when they're in conflict and need mediation.

•Exempt from the agency's jurisdiction: retailers, doctors, auto dealers and other non-financial firms. Frank was responding to criticism that the consumer agency might start regulating, say, Main Street furniture stores that offered layaway plans.

•Kill plans to require financial firms to offer "plain vanilla" versions of mortgages and other products that would be easy to understand and compare with competing versions.

•Finance the new agency without imposing new fees on banks. Previously unregulated non-bank financial firms would have to pay fees.

Speaking before Frank's committee Wednesday, Treasury Secretary Timothy Geithner called the chairman's changes "pragmatic and helpful."