The House has approved legislation to close loopholes and provide more transparency in the controversial Troubled Assets Relief Program.

The TARP Reform and Accountability Act passed by a vote of 260 to 166. The bill, introduced by House Financial Services Committee Chairman Barney Frank, D-Mass., allows the Treasury Department to disburse the second half of the $700 billion financial bailout package, but places limits on executive compensation and requires banks to provide more information on how they are using the money to increase lending.

Up to $100 billion of the money, and no less than $40 billion, must be used for foreclosure mitigation. The bill also prohibits all golden parachute payments to executives for the duration of the investment, and provides for "claw-back" of any compensation received based on materially inaccurate statements.

In addition, the bill applies the executive compensation requirements originally included in the automobile bailout bill that failed to pass last month to any new receipt of TARP funds. It prohibits paying or accruing any bonus or incentive compensation to the 25 most highly compensated employees in a company, prohibits any compensation plan that would encourage manipulation of earnings to enhance compensation, and requires the divestment of any private aircraft or leases.

"The American people deserve a government that is a fierce watchdog of their hard-earned tax dollars,” said House Speaker Nancy Pelosi, D-Calif. (pictured), in a statement. “Congress and the new administration will ensure that TARP funds are used for lending to American workers and small businesses -- so we can lift our economy out of recession -- and not for the enrichment of a privileged few."

The bill also clarifies the Treasury's authority to establish facilities to support the availability of consumer loans, such as student loans, and auto and other vehicle loans, as well as support for commercial real estate loans and mortgage-backed securities. It also provides support to issuers of municipal securities.

Some House Republicans assailed passage of the bill. "H.R. 384 grants more widespread discretion and authority to the Treasury secretary on how to use the hundreds of billions of dollars in the TARP program," aid Bob Latta, R-Ky. "With this, the Treasury secretary will force his way into business decisions companies will make. As I have previously stated, the federal government should not dictate private business decisions. ... Thus far, we have no solid proof the TARP funds that have been released are stabilizing our financial markets and we certainly have no solid proof the next release will have a positive impact on our financial markets." 

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