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Financial Sector Antes Up Over Regulation Plan

WASHINGTON - Wall Street, commercial banks and an array of other business interests are undertaking an all-out lobbying effort to shape legislation that imposes sweeping government oversight of the financial services industry.

The U.S. Chamber of Commerce has spent $2 million on advertising, including commercials slamming the creation of a federal consumer-protection agency, and plans to spend more, said David Hirschmann, CEO of the chamber's Center for Capital Markets Competitiveness. Bankers around the country, meanwhile, have sent about 250,000 letters to Congress raising alarms at the behest of the American Bankers Association, said Edward Yingling, the group's president. The association issued a "call to action" to its members recently, urging bankers to reach out "early and often" to senators who are expected to take up the legislation early next year.

On the other side, Americans for Financial Reform, a coalition of labor and civil rights groups formed in June, has spent nearly $2 million pushing for tougher regulation of the financial sector, Executive Director Heather Booth said.

"This bill is a sea change... in the way the financial services industry is regulated," said Scott Talbott, senior vice president of the Financial Services Roundtable, the lobbying arm for Wall Street banks. "It's all hands on deck."

The financial services sector is among the biggest lobbying interests, outpacing, for instance, what labor unions and defense firms each spent during the first nine months of this year.

Commercial banks, investment firms and credit-card/financing companies together have spent more than $126.5 million to sway Congress and the executive branch during the first nine months of 2009, according to data compiled by the non-partisan Center for Responsive Politics. The chamber, meanwhile, has spent $52.1 million on lobbying this year - more than any other single association or company.

Focus on derivatives

The lobbying already has paid off for some interests. A version of the bill passed by the House of Representatives this month would allow several groups, including retailers and auto dealers, to escape the scrutiny of the consumer protection agency. A separate measure, which would have allowed bankruptcy judges to reduce mortgage debts, was opposed by bankers and defeated on the House floor.

The legislation, which President Obama counts among his top domestic priorities, would usher in the biggest changes to the nation's financial system since the Great Depression. The House bill would impose regulations on portions of the derivatives market and grant the federal government the authority to dissolve large, troubled firms whose collapse could threaten the economy. A derivative is a financial instrument that is derived from the value of another asset.

One of the biggest sources of friction, though, is the creation of the Consumer Finance Protection Agency with powers to regulate matters from mortgages and credit cards to car loans.

Critics such as the banking association's Yingling said the agency amounts to a new and unnecessary layer of bureaucracy, and its actions could run counter to those of existing banking regulators. "We would end up with two regulators pulling us in opposite directions," he said.

The chamber's ads, meanwhile, took up the cause of retailers, claiming that the agency would make it harder for small-business owners to extend credit to customers.

The proposal to create the agency is so contentious that "every individual you can think of is crawling out from under the woodwork seeking exemptions," said Lauren Saunders, managing attorney of the National Consumer Law Center, which backs the increased consumer protection in the legislation.

Car dealers win break

Auto dealers, for instance, have secured an exemption from the agency's oversight in the House bill under an amendment pushed by Rep. John Campbell, R-Calif., who is a former auto dealer.

In most cases, dealers serve only as middlemen between lenders and car buyers and should not be subject to additional regulation, Campbell said. Under the House bill, the lenders themselves, including auto-finance companies such as GMAC, would be subject to the new agency's supervision. "We were trying to avoid a needless second set of regulatory costs for an industry that everyone knows is completely on its back right now," Campbell said of the auto-dealer exemption.

Consumer activists, such as Rosemary Shahan of Consumers for Auto Reliability and Safety, say dealers need the federal scrutiny because they are pivotal players in the loan process and earn higher commissions from lenders when they steer car buyers into higher-interest loans.

"You can't police auto lending without policing auto dealers," she said.

The National Automobile Dealers Association, which contributed nearly $3 million to federal candidates in the 2008 election cycle, encouraged dealers to makes "hundreds of calls" to House members to win the exemption, said Bailey Wood, the association's spokesman. The group now plans to "put the full might of our grass-roots efforts" behind securing a similar exemption in the Senate, he said.

In that chamber, an early draft circulated by banking committee Chairman Sen. Chris Dodd, D-Conn., included the consumer-protection body, but several senators, including Alabama Sen. Richard Shelby, the top Republican on the panel, have signaled opposition to the agency. The bill could come up for consideration by the full panel as early as next month.

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