The Senate Banking Committee, per the Wall Street Journal, may dump the Consumer Financial Protection Agency, seen by the White House as the signature piece of financial regulatory reform. It’s based on anonymous sources close to Chris Dodd, but the Banking Committee has been attempting to pull off a bipartisan package, and Republicans have joined with bank lobbyists in total opposition to the CFPA.

Senate Banking Committee Chairman Christopher Dodd is considering scrapping the idea of creating a Consumer Financial Protection Agency, people familiar with the matter said, an initiative at the heart of the White House’s proposal to revamp financial-sector regulations.

The Connecticut Democrat, who announced this month that he wouldn’t run for re-election this year, has discussed the possibility of abandoning the push for a new agency during negotiations with key Senate Republicans as a way to secure a bipartisan deal on the legislation, these people said.

Mr. Dodd’s offer is conditional, however: Republicans must agree to create a beefed-up consumer-protection division within another federal agency, these people said.

The apparent willingness to forgo an independent consumer-protection agency would be a major concession for Mr. Dodd, who had blasted the banking industry for lobbying aggressively to prevent the creation of such an entity. “The very people who created the damn mess are the ones now arguing that consumers ought not to be protected,” he said in June.

I don’t understand how creating a consumer-protection division within another agency is anything different from where we are now. Currently, the Federal Reserve has authority for consumer protection, and as Jeff Merkley told me, the Fed doesn’t do a thing with it:

If you think about the Fed, monetary policy is in the penthouse, safety and soundness is maybe a couple floors below that, and consumer protection is deep in the basement. And yet Bernanke has been arguing to return consumer protection to the Fed. I think that’s wrong. The Consumer Financial Protection Agency would be a great tool to support competition. Lenders and banks shouldn’t compete on deceiving their customers to maximize profit, but should compete on service and price point. And a strong CFPA would allow that, and complement the capitalist system, much like the courts do.

Simply put, there needs to be an agency with the primary focus on making financial products safe for consumers.

On an AFL-CIO tele-town hall, President Richard Trumka said “there are lobbyists all over the Hill” working to stop financial reform and the CFPA, and seemed to confirm that Dodd was looking at concessions. “I’m worried that Sen. Dodd is wavering on that a little bit. We need to make sure he’s following through.”

The difference between this issue and the public option is that the White House has really stuck its neck out for the CFPA, making it the centerpiece of their overhaul of financial regulations. There are quotes from everyone from Barack Obama to Larry Summers about the important need for the CFPA. They have actually fought for this. So giving it up would be very difficult for the White House.

This should be a fight the Obama Administration ought to be willing to lose. Anyone with a brain could run a campaign on the opposition’s rejection of an agency devoted to protecting consumers. You don’t have to be a political genius to figure that out. The bank fee, while modest, can be politically potent. The CFPA is the same kind of issue. And the White House should insist on one, even at the cost of the entire bill. Regulatory issues like this aren’t going away. You can make this a campaign plank.

The genius of financial regulation is that while it’s important to fix this it’s actually not critical that it be done in 6 months as opposed to 18 or 24 months. This is an issue where if a block of 44 Senators want to filibuster you can draw a line in the sand, let them filibuster and run around the country complaining about it. That’s a campaign issue. That’s a time to show the base some gutty feisty fightiness. An opportunity, in other words, for people to see their president fighting hard. And also to see that a hard-fighting president isn’t enough—he needs a congress that’s willing to vote for progressive bills.

A veto threat could go a long way here.