The House of Representatives passed new legislation Friday afternoon which will substantially change the way Wall Street and consumer lenders do business.

By a vote of 223-202 lawmakers passed HR 4173, The Wall Street Reform and Consumer Protection Act.  The tally did not include a single Republican vote.

The 1280 page bill will strip most of the Federal Reserve's powers to write consumer-protection laws, creating instead the Consumer Financial Protection Agency (CFPA) a new and independent agency which will have, as its only responsibility protecting consumers from unfair and abusive financial products and services.  The legislation also establishes a council of regulators charged with identifying financial firms that are, in the parlance of today, too big to fail.  These systemically risky firms will be subject to increased oversight, standards, and regulation as well as a process for shutting down, without a taxpayer bailout, those that get into trouble.  Critics say that the bill allows for breaking up even healthy institutions if regulators feel they are too large.

The law incorporates portions of an bill passed earlier this year by the house that outlawed many of the practices that led to the subprime leading debacle and established a simple standard for home loans:  institutions are responsible to ensure that borrowers can repay the loans they are sold.

Executive compensation is also subject to controls written in the bills which give stockholders the right to vote on executive compensation including pay and so-called golden parachutes and requires companies to disclose incentive-based compensation plans.

The bill will require dealers and major swap participants to clear swap transactions and exchange them on an electronic platform.  The bill defines a major swap participant as anyone that maintains a substantial net position in swaps, exclusive of hedging for commercial risk, or whose positions create such significant exposure to others that it requires monitoring.

The Securities and Exchange Commission is given increased power and is authorized to conduct a study of the entire securities industry to identify needed reforms to prevent future problems such as the Madoff ponzi operation. 

Lastly the bill requires hedge funds to register with the SEC where they will be subject to systemic risk regulation by a financial stability regulator. 

Wall Street and banks have fought hard against the House bill and can be expected to continue the battle in the Senate.  Major financial corporations have complained that the bill, especially the consumer protection agency, establishes merely another level of bureaucracy.  Opponents of the bill won one victory in the House, successfully defeating an amendment which would have allowed bankruptcy judges to "cram down" the balance of a mortgage to reflect the current value of the collateral.

In a letter sent last week to the chairperson and ranking member of the House Committee on Rules a group of mortgage associations expressed concern about one requirement in the bill.  The letter, signed by the Community Mortgage Banking Project, the National Home Builders Association, the Mortgage Bankers Association and four other groups said that "the language establishing an across-the-board credit risk retention requirement will raise consumer borrowing costs and limit the availability of affordable mortgage options."  The signers said that they supported the concept of establishing accountability requirements for lenders but wanted a "more prudent approach..."based on the level of risk with a clear distinction for safe, sound and simple mortgages," and asking for an exemption from the requirements for commercial and multifamily real estate transactions "where the risks are well defined and understood."