WASHINGTON, DC - U.S. Senator Jack Reed's plan to strengthen regulation of credit rating firms took a crucial step forward today when it gained bipartisan approval from a key House panel by a vote of 49-14.

The credit rating industry contributed to the implosion of the financial markets by doling out top ratings based on weak analyses and failed to maintain appropriate independence from the issuers whose securities they rated.

Reed's Rating Accountability and Transparency Enhancement (RATE) Act of 2009, which was introduced in the Senate on May 19th, would give the Securities and Exchange Commission (SEC) strong new authority to oversee credit rating firms and hold them accountable for conflicts of interest and other internal control deficiencies that have weakened ratings in the past.

The bill also includes a narrowly tailored provision that would allow investors to take legal action against rating firms that "knowingly or recklessly" fail to review key information in developing ratings. Credit rating firms could avoid litigation by conducting thorough reviews or by obtaining assessments from independent firms.

"I applaud the House Financial Services Committee for approving this legislation with strong bipartisan support, particularly Congressmen Kanjorski and Chairman Frank for their leadership. I hope the Senate Banking Committee will soon take up and pass credit agency reform legislation, which is critical to restoring balance to the financial system and making rating agencies more impartial and independent," said Reed. "The current credit rating system is not structurally sound. This legislation will crack down on conflicts of interest and help ensure that ratings are based on facts, not on fees."

Senator Reed's bill, S. 1073, is pending before the Senate Banking Committee.