Oct. 19 (Bloomberg) -- White House economic adviser Lawrence Summers told leaders of top financial companies last month the Obama administration “will not be lectured” by opponents of a proposed consumer-protection agency.

In a closed-door speech to the Financial Services Roundtable in Washington on Sept. 24, Summers, 54, told the executives they were beneficiaries of an unprecedented government bailout and should brace for a regulatory overhaul, according to one participant.

The administration “will not be open to arguments motivated by perpetuating the status quo,” Summers told the audience that included executives of New York-based Bank of New York Mellon Corp., AXA Financial Inc. and Minneapolis-based U.S. Bancorp, according to notes taken by the participant, who requested anonymity.

Those comments were a preview of public remarks Summers, who is director of the National Economic Council, delivered Oct. 16 in New York. “The events of the past two years should serve as a wake-up call,” he said. “The time has come for fundamental change.”

Summers’ words reflect the administration’s determination to win congressional approval for the consumer agency over the opposition of the financial-services industry, which has spent $225 million lobbying lawmakers this year, according to the Center for Responsive Politics, a Washington research group.

‘Do Everything’

“I’m going to do everything I can to stop them from killing it,” President Barack Obama said in an interview Sept. 14.

On ABC’s “This Week” yesterday, senior White House adviser David Axelrod said Obama’s priority is to “defeat the lobbyists or the banks.” Chief of Staff Rahm Emanuel said on CNN that Americans were “frustrated and angry” with banks.

The comments mark a turnaround for Summers, who as Treasury deputy secretary and then secretary in President Bill Clinton’s administration, helped deregulate the financial industry 10 years ago. They also demonstrate the degree to which the climate in Washington has changed as the nation recovers from the deepest economic crisis since the Great Depression.

As recently as April, the No. 2 Senate Democrat, Dick Durbin of Illinois, complained that Wall Street lobbyists “own” Congress and would scuttle regulatory change.

‘A Given’

Today, that power is waning. The creation of the consumer agency is now considered “a given,” New York-based JPMorgan Chase & Co.’s Chief Executive Officer Jamie Dimon said on an Oct. 14 call with analysts and investors. “I wish it weren’t,” he said.

The proposal for the agency would strip consumer-protection duties from bank regulators and concentrate them in the hands of a new entity with the power to prohibit credit products such as mortgages with escalating interest rates. At stake is how much control regulators will have over U.S. household debt products, a market that includes credit cards, home mortgages, and car loans.

In its efforts to block the agency, the financial-services industry has undertaken a lobbying and advertising blitz. In August, thousands of bankers visited lawmakers in 36 states and wrote more than 75,000 letters opposing the consumer agency.

The U.S. Chamber of Commerce is spending “at least $2 million” to kill the plan and “anticipates spending a lot more,” said David Hirschmann, president of the Washington-based business group’s Center for Capital Markets. “We will spend whatever it takes.”

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The Chamber, which spends more than any other group on lobbying, ran ads in Washington newspapers suggesting the CFPA would bar small businesses from allowing customers to run a tab.

Opponents have attacked the overhaul “in a very public way” through the ads, and “they’ve done it in the classic lobbying way, the thundering herds of Washington out there calling up every member every day to try to lobby against the bill,” Elizabeth Warren, the chairman of the Congressional Oversight Panel that monitors the $700 billion bailout plan for financial companies and who conceived the consumer agency, said in an Oct. 15 interview.

For all that, Hirschmann said the new agency likely will be created. The fight now is over the details, he said, such as whether the federal agency would preempt stronger state rules, as business interests want. The administration wants states to retain the power to create even tougher consumer laws.

“We’re going to be fighting very hard,” said Michael Barr, assistant Treasury secretary for financial institutions, in an interview.

Frank Bill

House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has granted some bankers’ wishes, including striking from a measure a requirement that they offer “plain vanilla” products such as fixed-rate mortgages before marketing loans with increasing monthly payments. A final vote may be held as early as Oct. 21, Frank said.

Still, the Financial Services Roundtable signed onto a letter last week arguing the bill would “have a devastating impact on consumer and small-business access to credit.”

The consumer agency may be a litmus test for Obama’s broader regulatory overhaul, said Gary Goldberg, a lobbyist with Sonnenschein Nath & Rosenthal LLP in Washington. That plan includes creating a systemic risk regulator, mandating centralized clearing of derivatives trading, and making it easier for the government to close failing firms.

If the CFPA were to fail, “it would embolden those whose agenda is to limit the scope of federal regulation,” Goldberg said.

To contact the reporters on this story: Alison Fitzgerald in Washington afitzgerald2@bloomberg.net and Gadi Dechter at gdechter@bloomberg.net

Last Updated: October 19, 2009 00:00 EDT