WASHINGTON — The draft legislation that lawmakers used as their starting point Thursday for writing the final version of the most sweeping overhaul of financial regulation since the Great Depression contains key provisions to combat predatory lending and provide relief from foreclosure.
The 1,974-page bill combines elements of bills that both the Senate and the House of Representatives already have passed. It leaves for negotiation areas where the two chambers took different approaches.
To the delight of consumer advocates, the starting document for the negotiations includes important provisions that target some of the mortgage lending abuses that helped trigger the financial crisis.
These provisions seek to create minimum standards for mortgages, such as a borrower's ability to repay a loan; discourage predatory lending to minorities and the elderly; and eliminate special bonuses paid to mortgage brokers for getting borrowers into unsuitable loans.
Many of these provisions were absent from the Senate bill, but they were included in legislation that the House of Representatives passed in December. The Congressional Black Caucus held up the bill until more attention was paid to distressed minority communities.
Rep. Maxine Waters, D-Calif., a leader of that effort, Thursday seemed pleased.
"I think we can do a lot of good," she said.
Including the provisions improves the chances that they'll be in the final legislation, said Michael Calhoun, the president of the Center for Responsible Lending, a consumer-advocacy group in Durham, N.C.
"Everybody wants to be in the base language in any process, but more so in conference," he said, referring to the negotiations between House and Senate members. "It makes a big difference to get into the base language."
Negotiators began deliberations Thursday.
Sen. Christopher Dodd, D-Conn., the chairman of the Banking Committee, positioned himself and his party as champions of the embattled consumer.
"There is a lot of talk about the Dow, but we will see the stock market come back, portfolios will be fine in the long run, but middle class families across the country will be feeling the blow from these losses for years to come," Dodd said. "These are problems we cannot walk away from. We must act."
Republicans painted Democrats as eager to increase the federal government's reach and warned that Main Street would lose access to credit.
The draft is "a Democratic experience in government management," charged Alabama Sen. Richard Shelby, the top Republican negotiator.
The GOP lacks the votes to make much difference, he conceded.
"I have no illusions about how this will unfold," Shelby said.
Democrats touted the open negotiations, televised on C-SPAN3, but Republicans complained that they'd only seen the draft_ including 300 additional pages of House-approved measures — shortly before the conference began.
"We are not starting on a good note," complained Sen. Michael Crapo, R-Idaho.
The draft, called the Restoring American Financial Stability Act of 2010, is based mostly on the Senate bill.
The formal process of writing a final bill will begin on Tuesday. First up are sections involving the merger of two bank regulators, the creation of an Office of National Insurance, the first-ever registration of hedge funds and new rules on credit rating agencies.
Lawmakers face a self-imposed July 4 deadline to pass the compromise legislation, or at least have an agreement on it before the leaders of the world's most developed economies meet in Toronto late this month.
Democrats enjoy majorities in both chambers, so the biggest initiatives are expected to remain intact. The centerpiece is a Bureau of Consumer Financial Protection to write and enforce rules for consumer credit products such as mortgages, credit cards, and student and car loans. Still undetermined, however, is whether it will stand alone or be housed in the Federal Reserve.
Big fights are expected over a planned revamp of interchange fees that credit card companies collect from small businesses. Negotiators also are expected to pare back a portion of the bill added by the Senate Agriculture Committee to force banks to spin off their lucrative business in complex financial instruments called derivatives.
"Banks were never intended to perform these activities in the first place," said Sen. Blanche Lincoln, D-Ark., who wrote the derivatives language.
Signs of a rift emerged Thursday among Democrats over the tough Senate approach to derivatives, which the Obama administration and the Federal Reserve oppose.
Republicans — echoing some Democrats_ argued that companies often use derivatives to hedge against currency fluctuation or volatility in prices of commodities such as oil. As written, they warn, the bill would place derivatives further from the reach of regulators.
"We need to make sure we don't overreach, not just to Main Street, but to the manufacturing sector, the energy sector," said Sen. Saxby Chambliss, R-Ga.
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