GOP Challenge to Financial Reform Bill Fails

Following strong pushback from the White House, Senate Democrats today voted down a Republican proposal that opponents suggested would have effectively "gutted" consumer protections in the financial industry reform bill.

The amendment failed 38 yeas to 61 nays.

The bill being proposed by Democrats creates a consumer protection division housed at the Federal Reserve that would consolidate various consumer protections. The GOP amendment would have based that consumer protection division within the Federal Deposit Insurance Corp., or FDIC.

As CBS News Capitol Hill producer John Nolen reports, Republicans argued that the Democrats' proposal created unnecessary bureaucracy and represented government overreach; they suggested it would impact small businesses caught up in new regulations.

For their part, Democrats said that if the GOP amendment passed, the consumer protection division would lack independence and authority and essentially leave oversight to the same regulators that failed last time around.

Under the House bill passed late last year, there would be a new, stand-alone federal Consumer Financial Protection Agency.

President Obama released a statement earlier today hammering the Republican amendment as one that "will gut consumer protections and is worse than the status quo."

"This amendment will significantly weaken consumer protection oversight, includes dangerous carve outs for payday lenders, debt collectors, and other financial services operations, and hurts the ability of community and local banks to compete by creating an unlevel playing field with their non-bank competitors," the statement said, deeming the amendment "unacceptable."

The White House also deployed Deputy Treasury Secretary Neal Wolin to the daily press briefing to hit many of the same points.

Meanwhile, Senate Majority Leader Harry Reid, in an interview with the Huffington Post, said he would ensure that an amendment to break up big banks would come up for a vote - adding that he was leaning toward backing it. Majority Whip Dick Durbin has already come out in favor of the amendment. Under the amendment, designed to end "too big to fail," no bank could hold more than 1/10th of U.S. deposits.

Reid also said he supported an amendment to audit the Federal Reserve. That could mean, among other things, exposing payoffs to companies financially intertwined with AIG following the government bailout of the company.