The House Financial Services Committee approved its final version of a measure Thursday that would create a new federal regulator to oversee all consumer-facing financial instruments, including mortgages.

The Consumer Financial Protection Agency Act of 2009 (H.R. 3126) cleared the committee with a vote of 39 to 29 – the first hurdle for one of the administration’s central pieces of financial regulatory reform. After over a week of debate and mark-ups by the committee, the legislation will now move on to the full House for consideration.

The Consumer Financial Protection Agency (CFPA) would be empowered to write and enforce regulations on a variety of consumer borrowing instruments, including home loans and credit cards, and ensure the language and terms of such financial products are fair, transparent, and clearly understood.

Proponents of the new agency, rallying in favor of stricter, inflexible protections for homeowners and consumers, argue that the committee’s approved version of the bill is watered down.

The original draft of the bill would have given the CFPA the regulatory oversight of credit insurance, title insurance, and mortgage insurance products. The final statute, though, included an amendment that exempts insurance companies and their products from the agency’s supervision. Other consumer-facing businesses such as retailers, auto dealers, lawyers, and accountants were also left out of the final language.

But the biggest change, according to a CNN report, was to allow 98 percent of the banking industry — some 8,000 community banks and credit unions — to keep their current regulators when it comes to enforcing new consumer rules. By withdrawing an amendment that would have given the CFPA the authority to overrule state consumer protection laws, the committee is essentially making the agency the nationwide floor for such regulation, rather than the upper ceiling.

Still, Treasury Secretary Timothy Geithner called the committee’s passage of the act “an important milestone” for reform efforts. “This bill will create one agency focused on one simple mission—protecting consumers,” Geithner said. “While there is more work ahead, today we are much closer to putting in place strict new rules of the road for the financial industry.”

But even with the bill’s recent victory, lobbyists for the financial community haven’t given up their fight to kill the agency. According to Politico.com, opponents of CFPA have already set their sights on the Senate, where they hope friends of banking-friendly lawmakers might water down the bill even further or completely throw out any proposal for the new agency.

“It’s increasingly unlikely the way things look and feel that there will be a lot of bipartisan cooperation on the Senate side,” the Web site quoted one financial industry lobbyist as saying.