Two Republicans — Olympia Snowe of Maine and Charles Grassley of Iowa — joined Democrats to defeat the measure, which faced stiff White House opposition. The Republican proposal called for an agency within the Federal Deposit Insurance Corp.
Senate Republicans failed to get support for their own version of a consumer protection agency amid stiff opposition from the White House.
The GOP proposal failed on a vote of 38 to 61. Two Republicans -- Olympia Snowe of Maine and Charles Grassley of Iowa -- joined Democrats to defeat the measure.
Republicans proposed a council devoted to consumer lending within the Federal Deposit Insurance Corp. Their plan sought to narrow the focus to businesses they said were at the core of the economic crisis -- such as nonbank mortgage companies.
The White House criticized the proposal.
"Alternatives that gut consumer protections and do nothing to empower the American people by cracking down on unfair and predatory practices are unacceptable," President Obama said in a statement before the vote.
Sen. Jack Reed (D-RI) said the Republican plan essentially created a loophole for payday lenders, debt collectors and other financial businesses.
"They would create an oversight agency and then exempt virtually the entire financial industry for consumer lending oversight," Reed said. "It's more like a lapdog then a watchdog."
The current legislation seeks a consumer bureau headed by a presidential appointee, with its own budget and rule-making authority. It would be housed within the Federal Reserve. It would write and enforce laws over all kinds of personal lending -- from student loans to credit cards and mortgages. That responsibility is at present spread across seven agencies.
But Sen. Richard Shelby (R-AL) said the current plan would create a "massive new bureaucracy whose power and scope would have no equivalent in the U.S."
The Senate then turned its attention to another amendment opposed by the Obama administration -- a proposed audit of the Federal Reserve that has bipartisan support and that even Senate Majority Leader Harry Reid (D-NV) has said he is inclined to support.
It would require the Federal Reserve to undergo a thorough audit by Congress' investigative arm, the Government Accountability Office.
The measure, proposed by Vermont independent Sen. Bernie Sanders, has populist support from across the political spectrum, from Tea Party activists to liberals and labor organizations. The Federal Reserve and the Treasury oppose the measure, arguing it could interfere with the Fed's independence, a crucial element if the Fed is to carry out unpopular but economically essential policies.
Sanders stressed Thursday that the GAO examination would not intrude on the Fed's job of setting monetary policy. Instead, it would focus on the Fed's emergency lending authority to banks and would require that it make public the recipients of that money.
"We cannot let the Fed operate in secrecy any longer," Sanders said.
Deputy Treasury Secretary Neal Wolin on Thursday reiterated the administration's opposition to the audit proposal.
Material from The Associated Press was used in this report
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