The Federal Reserve, which was criticized for failing to protect consumers in the run-up to the credit crisis, would be the home of a new financial consumer watchdog under an agreement announced on Monday.

House of Representatives Democrats said they have agreed to go along with a Senate proposal to put the watchdog inside the Fed, backing down from their earlier support for setting up a powerful new stand-alone agency.

The House's retreat on the issue resolves a lingering dispute and moves historic Wall Street reform legislation closer to completion. A Senate-House panel is slated to reconvene on Tuesday to work on finalizing the bill.

The legislation will be the biggest overhaul of financial regulation since the 1930s. Enactment would give President Barack Obama and the Democrats a major policy victory to add to healthcare reform going into November's general elections.

Under the latest agreement, the consumer watchdog would be housed in the Fed but it would be independent in many respects, with the power to both write rules and enforce them.

The new agency, which would consolidate consumer-related duties now dispersed across several agencies, would oversee mortgages, credit cards and other consumer financial products that critics say were poorly supervised in recent years.

House Democrats negotiating the legislation will also seek to subject payday lenders, check cashers and private student loan providers to the watchdog's supervision, said a statement from Representative Barney Frank, chairman of the panel.

The House said it wants to add certain exclusions to the watchdog proposal for auto dealers and pawnbrokers.

Frank also said the House has reached an agreement on a Senate proposal, drafted by Democratic Senator Richard Durbin, on curbing fees charged on debit card transactions.

Durbin said separately that the agreement makes minor, clarifying changes to his proposal, which was approved by the Senate. He said the changes would exempt from the rule prepaid and debit cards used in distribution of government benefits.

He also said the agreement would allow the Fed in some cases to adjust fee rates on cards for fraud prevention costs.

In another aspect of the reform legislation, Frank said House Democrats want to strike from the bill a Senate proposal relating to risk retention requirements for commercial mortgage backed securities and add a provision to require consideration of collateralized instruments in credit risk retention rules.

The Senate-House conference committee aims to complete final legislation by Thursday. The panel is working to combine bills already approved by the two chambers. The finished product must win approval once more, then can go to Obama to sign. Democrats hope for that by July 4.

Lawmakers are still seeking compromise on proposals to force banks to spin off swap dealing desks, and to curb risky proprietary trading by banks unrelated to customers.

Groups likely to take the hardest profit hits from the proposed reforms, taken as a whole, include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup, according to analysts.

The reforms are meant to prevent a repeat of the 2007-2009 credit crisis that tipped the economy into a deep recession, triggered massive taxpayer bailouts of big banks, and unleashed a wave of regulatory reform initiatives worldwide.

Tightening financial oversight in a coordinated way will be a key topic at a meeting of the Group of 20 economic powers in Canada next weekend.

The congressional conference committee last week concurred on widening audits of the Fed, but dropped a provision to make the head of the New York Fed a political appointee.

Lawmakers also reached full or partial agreement on measures dealing with credit rating agencies, private equity and hedge funds and raising bank capital standards.