WASHINGTON–Key Senate lawmakers are close to a deal on a legislative package to overhaul financial regulations, people familiar with the matter said, driven in part by a near-agreement to create a new consumer protection division within an unlikely body–the Federal Reserve.
Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and Sen. Bob Corker (R., Tenn.) were conferring with other members of the party in an effort to sell the agreement, Senate aides said.
This is the closest the bitterly divided Senate has come to an agreement on new financial rules, and Mr. Dodd will likely have to make a hard sell on any plan that would give the Fed new powers to police the way mortgages and other products are offered to consumers. He has been one of the Fed's biggest critics and routinely blasted the central bank for failing to enforce the consumer-protection powers it already has.
"Senator Dodd is keeping members informed on how things are progressing as he has throughout this process," his spokeswoman said. "We do not have an agreement yet. He hopes to have a consensus bill in the coming days."
If lawmakers feel they have enough agreement, Mr. Dodd could introduce his bill later this week and potentially hold a vote in his committee later in the month. If other lawmakers balk at agreements between Messrs. Dodd and Corker, it could make it more difficult for them to pass legislation this year.
Democrats and Republicans have remained bitterly divided over how best to rework consumer-protection rules.
President Barack Obama has called for the creation of an independent Consumer Financial Protection Agency, which would write and enforce rules for any financial product, ranging from mortgages to credit cards to payday loans.
Many Republicans criticized the creation of such an agency, saying this would freeze up access to credit and create an unwieldy government bureaucracy. They have argued that new consumer-product rules would be best placed within the regulator that oversees nationally chartered banks.
Mr. Dodd, in an effort to get a deal, last week suggested the creation of a new division within the Treasury Department, but Mr. Corker rejected this idea. He proposed instead creating a new division within the Fed.
The division would be led by a White House appointee, have the ability to write and enforce rules, and have a separate budget. It would also give the Fed a much more direct mandate to focus on consumer-protection issues. The two lawmakers have held extensive discussions about the idea and are presenting it to other lawmakers.
If accepted, this could dramatically reshape the focus of the Federal Reserve, which for years has primarily been focused on monetary policy ahead of bank supervision and often made consumer protection an afterthought.
Republicans might be more supportive of this approach because having Fed officials involved in consumer protection would offer a broader economic perspective to any new policies. 
But it could also re-trigger an anti-Fed sentiment that has rocked the central bank in the last 12 months, at one point threatening the confirmation vote of Fed Chairman Ben Bernanke. The Fed's pre-crisis efforts on enforcing consumer protection have been widely criticized.
