Obama Scraps Plan for Independent Consumer Protection Agency, Report Claims

The Obama administration is reportedly backing down from demanding a separate consumer protection agency in its plan to overhaul the financial regulatory system.

The Washington Post reported Thursday that the White House is willing to compromise with lawmakers skeptical of creating a stand-alone agency. That comes after Sen. Chris Dodd, D-Conn., who was shepherding financial regulatory reform as chairman of the Senate Banking Committee, last month said he could drop demands for a separate agency.

The agency had been envisioned to regulate sales and marketing of mortgages, home equity lines of credit, credit cards and other consumer financial products. Supporters have suggested that community group representatives sit on the board to make sure it addresses individuals' concerns.

Many business groups have stood in strong opposition to the creation of a new bureaucracy, arguing that such an agency would add an unnecessary layer of regulation and bureaucracy that will raise the costs of consumer financial products and limit innovation.

On Thursday, The Washington Post cited congressional and administration sources as saying President Obama now is considering placing the consumer regulator inside another agency, like the Treasury Department.

The establishment of a politically independent regulator was a key element of Obama's plan to reform the financial system, outlined by the president last year. The president had said his proposal is aimed at protecting consumers against predatory lending and other such tactics.

White House spokeswoman Jen Psaki would not confirm whether the agency would become its own unit or part of another agency, saying only that the administration is as committed to financial regulatory reform as ever.

The top priorities for Obama are "ensuring the bill includes independent appointment, an independent budget, and an independent ability to set and enforce clear rules of road to protect American families." Psaki said. "We should not allow banks to use the federal safety net to support risky activities that are unrelated to serving their customers. We will provide legislative language to the Senate Banking Committee and will work with Congress to implement these proposals in the final bill."

On Thursday, Treasury Secretary Timothy Geithner underscored Obama's efforts to push a "strong" financial regulation reform bill through Congress "soon."

Speaking to top officials from eight financial industry and business groups, Geithner said that "the administration would not give up, whether a bill is passed now or later -- they will not stop fighting" for regulation reform.

Among the groups present at the meeting were the U.S. Chamber of Commerce, Private Equity Council, American Bankers Association, and the Independent Community Bankers Association.

Federal Reserve Chairman Ben Bernanke told lawmakers on Thursday that he is concerned about removing authority from the central bank to supervise bank activities.

Click here to read more from The Washington Post.

Fox Business Network's Peter Barnes contributed to this report.