Senate GOP proposes alternate consumer protection plan

WASHINGTON - Republicans offered a weaker alternative to consumer protection measures that are central to President Barack Obama's plan for Wall Street regulation, opening a new front Wednesday in the Senate debate over how to rein in financial institutions.

The Senate pivoted straight into that confrontation after reaching a compromise on how to dismantle large failing firms. In that agreement, senators voted 93-5 to eliminate a contentious $50-billion fund that would have been used to pay for a firm's liquidation.

The Senate also voted 96-1 to protect taxpayers from losses. But the government would still have to put money upfront to cover the costs of a firm's orderly dissolution. That money would be recovered through the sale of the failed firm's assets and by forcing shareholders and creditors to take substantial losses.

"While we have had our differences in other areas, we have always shared a commitment to ensuring that taxpayers will never again be forced to bail out giant Wall Street firms that fail," Senate Banking Committee chairman Chris Dodd (D-Conn.) said of his agreement with Sen. Richard Shelby (R-Ala.).

But that agreement belied the remaining partisan disputes. And no disagreement displayed partisan differences more than the divide over consumer protections. The Republican plan would limit the enforcement power of a proposed consumer protection bureau and make its rules subject to approval by a top banking regulator.

The White House was quick to object. Spokeswoman Amy Brundage called the Republican proposal "nothing more than a lobbyist-influenced defense of the status quo and an attempt to water down the consumer protections" in the bill. "We will not accept this," Brundage said.

The GOP plan would create a division of consumer protection within the Federal Deposit Insurance Corp. to oversee nonbank mortgage companies and write consumer regulations. The FDIC would have to sign off on those rules.

In contrast, the Democratic plan backed by the Obama administration would create an independent bureau within the Federal Reserve to police lending and other customer financial service transactions. It would have a freer hand to enforce its regulations.

In another departure from the pending Democratic bill, the Republican plan would continue the practice of having federal laws override state laws. Under the Democratic proposal, states would be allowed to write and enforce tougher laws, a provision opposed by the financial industry.