Last week, the House Financial Services Committee Chair Barney Frank (D-Massachusetts) finally rolled out a draft proposal (H.R. 3126) to create a consumer protection agency that would be tasked with regulating the risky financial products -- subprime mortgages, credit cards, payday loans --  that have brought American consumers to their knees. Considering that entire city blocks are mired in foreclosure and thousands of households are buried in high-interest rate credit card debt, it's not surprising that there's overwhelming public support (PDF) for the federal government to provide oversight of the get-rich-quick instruments cooked up by Wall Street. But after months of deliberation, the proposed bill is weaker than many had hoped. Even so, banks are still unsatisfied, arguing that the reforms are too cumbersome.  And it appears that Illinois Rep. Melissa Bean (D) is lending them a hand by proposing to strip the Consumer Financial Protection Agency (CFPA) of even more regulatory power. Politico reports:

[M]oderates, who are members of the centrist New Democrat Coalition, are unhappy with proposed bill language that would force federally chartered firms to comply with state consumer protection laws. The moderates want to maintain the status quo, in which financial institutions that elect to have a national charter are exempt from additional state consumer protection laws.

Rep. Melissa Bean (D-Ill.), a lead negotiator for the New Democrats, told POLITICO on Tuesday that their position on pre-emption would most likely be offered as an amendment rather than changed by Frank in the existing bill, though talks are still ongoing.

The article goes on to provide a succinct explanation of the "pre-emption" debate:

The whole issue of pre-emption may be arcane to the average voter, but it’s critical in terms of who has the power to regulate consumer financial affairs.

On one side are consumer and civil rights activists who want to make sure that states remain empowered to make their own consumer laws — oftentimes tougher than the federal rules. On the other side are national financial institutions that warn that forcing them to deal with a 50-state patchwork of rules will drive up costs and drive down choice for consumers.

As we've noted before, the financial lobby -- and bailed-out banks in particular --  has thrown millions of dollars at trying to kill the creation of the CFPA. But with the prospect of a new watchdog agency now looking relatively certain, they're now focused on weakening the federal agency’s rules and regulations and making sure they preempt state laws. (Among these opponents is the American Bankers Association, whose national convention is the target of an October protest in Chicago.) While the details of Bean's amendment have yet to emerge, the Woodstock Institute's Tom Feltner tells us that "the concern is that an amendment would make the CFPA rules the strongest standard, rather than being a minimum that state's can build on."

As we've noted before, the loose regulatory system currently in place allows large financial institutions to circumvent stricter state laws. This has prevented attorneys general from going after predatory practices such as exorbitant interest rates and credit card fees, as Illinois AG Lisa Madigan testified before the House committee last spring. Illinois' congressional delegation has "a key role in fixing the lack of oversight that contributed to this mess," the Daily Herald editorial board recently reminded Bean and her colleagues. That's a responsibility she can't afford to ignore.