When we last left the House of Representatives, New Democrats were hijacking the financial reform bill because they wanted a vote that would gut the ability for state regulators to go after firms on local consumer protection laws. Last night, there was a breakthrough of sorts, which involved the House leadership basically giving the new Dems what they wanted.

By 6:30 p.m., the moderates had won significant concessions from top Treasury officials on a contentious consumer protection issue.

“The New Dems had concerns [about] a number of the amendments that we wanted to see either made in order or some of the language included in the manager’s amendment. And we’re satisfied that we came to a good place on this,” Rep. Melissa Bean (D-Ill.), a leading member of the New Democrats group and a member of the House Financial Services Committee, said upon emerging from House Speaker Nancy Pelosi’s office Wednesday night.

Specifically, the moderates hammered out a compromise on the issue of whether national banks should be subject to tougher state consumer protection laws. House Financial Services Chairman Barney Frank (D-Mass.) had promised Bean a vote on her amendment to shield national banks from state rules – a situation known as pre-emption, since the federal rules set by the new consumer watchdog would pre-empt those made by the individual states.

“The differences have been narrowed” on the pre-emption language, Frank told reporters as he left Pelosi’s office a few minutes ahead of Bean. The reworked pre-emption language will be included in the manager’s amendment, a House Democratic aide said.

First of all, a House Financial Services Committee staffer confirmed to me that Bean was not promised a vote on a specific amendment at all. Barney Frank said he’d work with her on language, and I guess he would say that’s what he did. However, the entire threat was based on Bean’s faulty rendering of the New Dem/leadership “deal”. Nevertheless, they were successful.

The deal would establish a set pre-emption level that pre-dates this reform, actually from before 2004. The Office of the Comptroller of the Currency would not have the discretion to decide on a case-by-case basis. As a lobbyist put it to Congress Daily, “The conservative Dems re-established themselves today.”

Right, they’ve been sidelined for soooo long.

There will also be an amendment to basically scrap the entire Consumer Financial Protection Agency and create a council of existing regulators in its place. Frank said the amenedment, written by Idaho Democrat Walt Minnick, is not expected to pass.

Debate actually began last night but the amendments will begin today. Several would change how the bill deals with regulation of over-the-counter derivatives. Frank had fixed language extending derivatives oversight to more of the market, and some amendments would blow up that deal, while others would actually restrict the industry further. Stephen Lynch (D-MA) has a bill to limit ownership of derivative clearinghouses, preventing conflicts of interests when one of the banks controlling much of the derivatives market also owns the clearinghouse. Bart Stupak (remember him? He’s actually better on other issues) would ban speculative credit default swaps.

The Obama Administration supports the bill.