Rep. Frank Releases House Version of Obama's Consumer Watchdog Bill

AP Barney Frank

House Financial Services Chairman Barney Frank (D-Mass) has prepared an alternative version to Obama administration legislation creating a Consumer Financial Protection Agency and as promised it includes several key departures from the Obama administration bill.

Frank's discussion draft—outlined in a memo to Democratic members earlier this week, a copy ofwhich was obtained by CNBC.com—does not require companies to offer “plain vanilla” products and services or mandate “reasonableness standards", forcing the firms to determine whether consumers understand the products and services being offered.

The Frank bill also addresses the key question of funding for the consumer agency.

The bill states that the Federal Reserve "shall transfer funds in an amount equaling 10 percent of the Federal Reserve System’s total system expenses" to the new agency to pay for its annual operations.

That funding will come from fees and assessments determined by the CFPA director and deposited into a special fund, known as the Consumer Financial Protection Agency Depository Institution Fund.

CNBC.com obtained a copy of the discussion draft before its release early Friday morning.

In general, Frank's version gives the agency many of the same rulemaking and enforcement powers of the White House proposal. Treasury Secretary Timothy Geithner told Frank and his committee at a public hearing Wednesday that the administration was "very supportive" of the changes.

Analysts, however, consider it less tough on financial firms by dropping the plain vanilla and reasonable standards provisions.

"Though it makes a number of changes, we're still opposed to creating a separate regulatory agency," said Scott Talbott, SVP of Government Affairs for the Financial Services Roundtable.

Frank's committee is taking up the issue of the consumer agency before the other remaining parts of the financial reform package at the request of the president.

The House already approved a bill on executive compensation in July, shortly before its August recess. Other measures include banking supervision consolidation, the creation of a super, or systemic, regulator, and resolution authority to deal with too-big-to-fail firms.