States seek quick creation of U.S. consumer agency

WASHINGTON, Aug 18 - A group of 24 state attorneys general is urging Congress to move quickly on legislation that would create a controversial new federal agency to police financial products, according to a letter released on Tuesday.

The attorneys general sent a letter to lawmakers on the key financial committees shepherding legislation that would create the Consumer Financial Protection Agency -- a critical component of the Obama administration's proposal to overhaul financial regulation.

"The current financial crisis, caused in part by irresponsible subprime lending and inadequate oversight, has demonstrated the need for comprehensive and effective consumer protection and enforcement at the federal level," stated the letter, which was signed by attorneys general from Iowa, North Carolina, Illinois, Ohio and California, among other states.

The Obama administration has proposed creating the regulator to keep dangerous financial products away from vulnerable consumers, arguing it is needed because regulators' current scattered approach has been seen as ineffective.

The agency would have broad power to write and enforce rules on financial products and services. The federal rules would only serve as a floor, however, and states could require financial firms in their jurisdictions to follow more consumer protection rules.

Many states have been hindered in recent years by bank regulators which have shielded large institutions from having to follow state consumer protection laws, allowing them instead to abide by uniform federal rules.

"Congress should support the existence of additional enforcement resources to fight fraud at all levels of the financial marketplace," the letter said.

The financial industry has come out sharply against the administration's proposal for the new consumer agency, arguing it would drive up costs and add an unnecessary layer of regulation.

Existing regulators have also expressed concerns about the new agency. Officials from the Federal Reserve, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency have said they do not want to lose the ability to examine firms for compliance with consumer protection rules.

The House of Representatives has introduced legislation to create the consumer agency but recently delayed consideration of the bill to hear more feedback.