Treasury Secretary Timothy Geithner told the committee that Congress needs to reform the regulatory system responsible for protecting consumers from lenders
"There exists today a national mandate, not seen in years, to reform our outdated and ineffective regulatory system," Geithner told lawmakers in prepared remarks. "Still, despite that reality, there are some who suggest we are trying to do too much too soon, and that we should wait until the crisis has definitively receded. And with respect to consumer protection in financial services, there are even those who contend we should leave things as they are."
Listen to Geithner's opening statement:
The White House is proposing a Consumer Financial Protection Agency that would be solely responsible for consumer protection regulation and strip that responsibility from the Federal Reserve.
The proposed agency would also regulate sectors of the financial services industry that are not currently regulated - like mortgage brokers and consumer credit companies.
"No federal agency sends consumer protection examiners into these institutions to review their files or interview their salespeople. No federal regulator collects information from them, except for limited mortgage data," Geithner said.
Democratic Financial Services Chairman Barney Frank delayed plans to consider the proposal this month until after Congress returns from its August recess. Nearly two dozen industry groups had written to Frank objecting to the legislation and warning that it was too broad.
Federal Reserve Chairman Ben Bernanke and Federal Insurance Deposit Corporation Chairwoman Shelia Bair were also scheduled to testify about the regulatory plans.
Earlier this week on Capitol Hill, Bernanke said, "We believe we can continue to do good work in this area" of consumer protections.
In prepared comments, Bair also defended the proposed consumer regulatory reform. She argued that effective consumer protection policies translates into sound financial institutions.
"The (consumer agency) should have sole rule writing authority over consumer financial products and services and the federal banking regulators should be required to examine for and enforce those standards," Bair said.
The idea to craft a consumer protection agency is part of the Obama administration's broader overhaul of the U.S. financial rules. The agency would monitor the fine print on such products as credit cards and mortgages. Such oversight is now scattered among the Fed and other agencies.
House Republicans have proposed an alternative plan to strip the Fed of its regulatory role and abolish the Office of the Comptroller of the Currency and the Office of Thrift Supervision. In their place would be a single regulator for depository institutions, which would include an office focused on consumer protections.
The Obama administration counters that its proposed agency could monitor nonbank institutions too, ensuring there aren't any gaps in oversight.
The administration's plan also would tap the Fed to be the regulator of huge, globally interconnected financial companies whose collapse could endanger the entire U.S. financial system and the broader economy.
Both Democrats and Republicans on Capitol Hill are leery of giving the Fed additional powers when they think its regulatory oversight of banks and risky mortgages led to the current financial crisis.
---- Compiled from wire reports and other media sources