Damien Paletta, Wall Street Journal

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.

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