Massachusetts Senate upset may have ripple effects on financial reform

Could Republican Scott Brown's election to fill Ted Kennedy's Democratic U.S. Senate seat in Massachusetts derail pending Wall Street financial reforms?

Although much of the attention about Brown's election has focused on the fate of the health care bill, there's another piece of pending legislation that may be affected: creation of a Consumer Financial Protection Agency (CFPA) with powers to safeguard consumers' welfare with credit cards, mortgages and other financial products.

President Obama originally proposed creating a financial watchdog agency earlier this year. The U.S. House gave its stamp of approval to a version of Obama's plan that was part of a huge Wall Street reform package passed in December 2009. A Senate version of the plan is still in draft form and in the midst of compromise negotiations between Senate Democrats and Republicans.

The 41st vote
What does this have to do with Brown's election in Massachusetts? The Democrats currently have a so-called "super majority" in the Senate. That means they have 60 votes and can easily quash Republican efforts to block passage of bills. Brown's election pushes the Democratic majority back -- to only 59 votes -- and makes Brown the 41st Republican. That may not be good news for those lobbying for Wall Street financial reforms that have been staunchly opposed by the GOP.

Brown's election comes just two weeks after Connecticut Sen. Christopher Dodd, chairman of the Senate Banking Committee, announced he would not seek re-election and retire from public office at the end of 2010. Dodd is brokering the compromises on the Senate's version of the bill. Word came in news reports last week that he may give up on an independent financial protection watchdog agency, opting instead to fold the agency into an existing federal department, such as the U.S. Treasury. Who knows what other political horse trading is happening behind the scenes.

Consumer groups watching closely
Consumer groups are alarmed at the prospect.

"The very financial institutions that benefited from the billions of dollars in taxpayer bailouts are now investing millions of dollars to kill efforts to fix our financial system. At the top of their hit list is the CFPA," writes Pam Banks, policy counsel for Consumers Union, the nonprofit owner of Consumer Reports magazine, in a statement released shortly after word of Dodd's waffling went public. Among other things, the CFPA would take over ongoing implementation of the Credit CARD of 2009, the most sweeping credit card reform law in history.

Consumers Union sent letters to Capitol Hill urging senators to support a consumer watchdog agency with a separate budget and the ability to write rules and enforce violations of consumer protections.

Lauren Weiner, spokeswoman for Americans for Financial Reform, said Brown's election has strengthen the group's resolve to push for change. She writes in an e-mailed response:

"Financial reform offers supports the opportunity to establish a compelling contrast between their support for working families and small businesses, and opponents' support for the big banks on Wall Street that helped cause the financial crisis."

Now, time is an issue for financial reform just as it is for the health care bill. According to some reports, Brown won't likely be seated in the Senate until the first week of February. If Dodd brings the financial reform bill up in his committee and then to the full Senate before Brown takes office, his election may not matter. But odds are Senate passage won't happen that quickly.

Meanwhile, Obama reportedly met privately with Dodd in the White House Jan. 19 lobbying him to hold fast on the watchdog group.

Stay tuned.

See related: House approves consumer financial protection watchdog agency, Obama proposes new consumer watchdog for credit cards, other financial services, What does Dodd departure mean for credit card reform? A comprehensive guide to the Credit CARD Act of 2009