June 22, 2010, 9:32 PM EDT
By Alison Vekshin

June 22 (Bloomberg) -- President Barack Obama’s proposal to create an agency to protect consumers in their financial- services transactions neared final approval in Congress after negotiators agreed to establish it as a division of the Federal Reserve.

The consumer bureau, which would have the authority to write and enforce rules policing banks and other financial companies for lending abuses, was the centerpiece of Obama’s plan to reform Wall Street regulations in response to the 2008 financial crisis. It was approved today by House and Senate negotiators who are in their third week of shaping the final bill to send to Obama for his signature.

“This was a very good day for consumer protections,” Senator Christopher Dodd, who is leading talks on behalf of the Senate, told reporters after negotiators completed their meeting. “This bill has what many have hoped for and that is for the first time ever in our country a place where consumer issues are going to be addressed in a very complete and thorough fashion.”

The action marks a defeat for Republicans and the financial-services industry, which lobbied against the idea. Obama didn’t get exactly what he wanted either -- he originally proposed a standalone Consumer Financial Protection Agency.

The House in December approved legislation that included a standalone agency. The Senate version of the plan to house the bureau at the central bank prevailed.

House and Senate negotiators also agreed to exempt auto dealers from oversight by the consumer bureau after aggressive lobbying from the industry. Obama, Dodd and House Financial Services Committee Chairman Barney Frank, who is leading the negotiations, opposed the exemption, which was included in the House version of the bill.

‘Strong Support’
Frank said today he included the exemption in his offer to Senate negotiators because it “has strong support in the House.”

“The political reality is that those of us who have fought against an auto dealer carve-out can’t prevail,” Representative Luis Gutierrez, an Illinois Democrat, said today during the meeting.

Senate negotiators also accepted the House proposal to allow the bureau to oversee payday lenders, money remitters, check cashers and private student loan providers.

On other matters today, Senate negotiators accepted House changes to a measure limiting fees that merchants pay when consumers use debit cards, a step toward its inclusion in the regulatory overhaul.
Swipe Fees
The measure would empower the Fed to set interchange, or “swipe” fees, that are “reasonable and proportional” to the cost of processing debit transactions.

The proposal pushed by Senator Richard Durbin, an Illinois Democrat, also would allow retailers to refuse credit cards for purchases under $10 and offer discounts based on the form of payment. Visa Inc. and MasterCard Inc., the world’s biggest payment networks, set interchange fees and pass that money to card-issuers including Bank of America Corp. and JPMorgan Chase & Co.
Senate negotiators rejected a House proposal to eliminate a Senate exemption for low-risk mortgages in a provision that requires mortgage firms to retain a 5 percent stake in the loans they sell to investors. The Senate bill wouldn’t require lenders to keep a stake in fixed-rate mortgages that require proof of a borrower’s income, don’t allow deferring payment of the loan principal and have other qualities that shield them from default.

Volcker
Negotiators tomorrow will take up proposed changes related to the so-called Volcker rule, language that’s included in the Senate bill to ban proprietary trading at U.S. banks. They said they plan to focus on June 24 on the section of the legislation dealing with derivatives oversight.

Frank, a Massachusetts Democrat, said it was important that lawmakers finish talks by June 24 so they can hold final votes in the House and Senate next week. He pointed out that Congress will be in recess the week of July 4.
“If we are not able to finish by Thursday, then this bill cannot pass until the middle of July,” said Frank. “We think that would be unwise from the standpoint of economic stability.”

Dodd told reporters after today’s meeting: “We’re going to get it done” this week.