U.S. lawmakers spared auto dealers from new scrutiny and neared agreement on trading limits for banks as they raced to complete the biggest overhaul of the financial rule book since the 1930s.
Negotiators signed off on new consumer protections as they resolved some of the most contentious sticking points in the sweeping rewrite of Wall Street rules.
"This was a very good day for consumer protection," said Democrat Christopher Dodd, the top senator on the panel. "We withstood the amendments that would have undercut that."
But lawmakers on a Senate-House of Representatives panel backed away from their toughest proposals as they pressed to finish their work before President Barack Obama discusses financial reform with other economic powers at this weekend's G-20 meeting.
Auto dealers looked likely to escape oversight by a new consumer-protection agency contained in the bill.
Behind the scenes, Democrats neared a deal that would tighten limits on banks' trading activities yet allow them to maintain small investments in private equity and hedge funds.
Negotiators also agreed to impose limits on debit-card transaction fees, a setback for card issuers like JPMorgan Chase.
Obama and his fellow Democrats hope the bill will serve as a blueprint for other countries trying to coordinate global regulation of financial markets.
Passage would hand Democrats a major legislative victory to add to healthcare reform before November's congressional elections. They hope to get a bill to Obama to sign into law by July 4.
The reforms are meant to prevent a repeat of the 2007-2009 financial crisis that tipped the economy into a deep recession and triggered massive taxpayer bailouts of big banks.
Bank lobbyists, often working closely with Republicans, have tried to block or water down the bill but with limited success amid deep voter anger with Wall Street.
Negotiators still must resolve lingering disputes over derivatives regulation and other issues that have billion-dollar ramifications for the financial industry.
Democrats were seeking to finalize proposals to force banks to spin off their lucrative swaps dealing desks and to curb trading for their own accounts — risky practices that have been blamed for contributing to the crisis.
A turning point could come on Wednesday. Dodd said he would try to stiffen the so-called Volcker rule, which would limit banks' proprietary trading by giving regulators less leeway to interpret it.
But that proposal, named for White House economic adviser Paul Volcker, could include a carve-out that would let banks make small investment in private equity and hedge funds.
Banks have pushed hard for the exemption, arguing that it is key to their asset-management business by allowing them to invest in funds alongside clients.
Lenders scored a limited victory Tuesday when negotiators agreed to house a new consumer financial watchdog within the Federal Reserve, which could result in less clout than if it were a stand-alone agency.
Other regulators would be able to strike down the consumer-protection bureau's actions if they decided they would threaten bank deposits or financial stability.
Banks and Republicans have unsuccessfully tried to kill the new consumer agency by arguing that it could choke off credit, but Democrats said existing regulators failed to protect consumers from widespread abuses before the crisis.
"The bank regulators simply do not have consumer protection high on their agenda," Frank said.
The exemption for auto dealers that do not finance their own lending came over the objections of the Pentagon, which said service members were being exploited by unscrupulous dealers.
The exact nature of the exemption remained unresolved. Senate negotiators proposed that auto dealers would have to abide by truth-in-lending rules issued by the new bureau, unless the Fed chose to override them.
The Federal Trade Commission would also have the power to pursue dealers' deceptive trade practices under that proposal.
House negotiators have insisted on a blanket exemption and had yet to respond to the Senate counteroffer.
In another possible blow to banks, House Democrats insisted that low-risk home loans be included in a requirement that mortgage lenders carry on their books at least 5 percent of the risk from loans they make and then sell off as securities.
Dodd, however, insisted that the low-risk loans be exempted. He rejected a House proposal to scrap a provision that would require regulators to consider alternate forms of risk retention for commercial loans.
Negotiators also worked to retain the support of moderate Senate Republicans whose votes are needed to win passage of the bill in the Senate. Both chambers must still approve the final bill before Obama can sign it into law.
One of those moderates, Senator Susan Collins, said she has been working with Dodd to ensure her proposal to raise bank capital standards would remain in the final bill by phasing them in over five years.
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