Senate rejects GOP changes to financial regulation pack

WASHINGTON - Prodded by President Barack Obama, the Senate yesterday rejected a Republican consumer protection plan that would have diluted a central element of the administration's financial regulation package.

Democrats and the president argued that the GOP proposal would have "gutted" consumer protections. The vote was 61-38, with two Republicans - Sens. Olympia Snowe of Maine and Charles Grassley of Iowa - joining Democrats to defeat the GOP measure.

Democrats have proposed an independent bureau within the Federal Reserve to write and enforce regulations that would police lending.

The Republican proposal would create an agency within the Federal Deposit Insurance Corp. The FDIC would have to approve regulations, and enforcement would be left to bank regulators.

Republicans said the Democratic bill overreached and would give a powerful consumer agency too big a voice in banking affairs. The Democratic version of the legislation already contained some concessions to Republicans, and Democrats showed no willingness to cede any more ground.

"Alternatives that gut consumer protections and do nothing to empower the American people by cracking down on unfair and predatory practices are unacceptable," Obama said in a statement before the vote.

The Senate turned its attention to another amendment opposed by the Obama administration: a proposed audit of the Federal Reserve that has bipartisan support. It would require the Federal Reserve to undergo a thorough audit by Congress' investigative arm, the Government Accountability Office.

The measure, proposed by Vermont Independent Sen. Bernard Sanders, has wide populist support from tea party activists to liberals and labor organizations.

The Federal Reserve and the Treasury are opposed, arguing it could interfere with the Fed's independence, a crucial element if the Fed is to carry out unpopular but economically essential policies.