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Former Moody's Investors Service employees told lawmakers Wednesday that poor quality ratings still plague the industry and urged them to consider new regulations, but Democrats and Republicans appeared starkly divided on what those rules should look like.

The main disagreement centers around whether or not Congress should make it easier for investors to sue credit-rating firms for the quality of their ratings - a key aspect of a U.S. House proposal opposed by the industry and many Republicans.

Credit-rating agencies have been criticized for exacerbating the financial crisis by giving overly generous ratings to complex securities. Some say firms like Standard & Poor's, Moody's and Fitch Ratings are conflicted because debt issuers pay them to evaluate and rate their products.

The former Moody's employees appeared before the U.S. House Oversight Committee. Later in the day, the heads of Standard & Poor's, Moody's and Fitch Ratings told lawmakers on the House Financial Services Subcommittee on Capital Markets that no analysts who made those grave errors during the financial crisis have been fired - a fact that angers some critics.

The lead analysts involved were "disappointed" and "surprised," said Fitch Chief Executive Stephen W. Joynt. "We've done a lot of thoughtful soul-searching," he said.

Earlier Wednesday, former analyst Eric Kolchinsky, who was suspended from Moody's on Sept. 3, told the oversight committee that the company continues to inflate its ratings on complex securities and that raters are so driven in a quest for revenue they just don't know when to say no when asked to rate a product.

"As an example of how little things have changed, asset-backed securities collateralized debt obligations are being rated once again," said Kolchinsky in his testimony. "This toxic product needs to be consigned to the dust bin of bad ideas but, unfortunately, there are still no incentives for rating agencies to say no."

Capital markets subcommittee Chairman Paul Kanjorski, D-Pa., said that lack of accountability for ratings is the reason why Congress should consider new liability provisions for raters in order to address the "tremendous conflicts of interest."

His draft bill goes further than the Obama administration proposal by changing the pleading standards in private securities litigation cases to make it easier for investors to sue. It would also empower the SEC to take civil action against raters and create a collective liability regime that would force nationally designated firms to be held responsible for each other's actions in an effort to get them to better police one another.

"This reform will hopefully incent participants in this oligopoly to police one another and release reliable, high-quality ratings," Kanjorski said, although he noted he is open to other ways to fix the problem.

Republicans, however, appeared skeptical about the idea.

Provisions establishing a new liability standard are "potentially problematic and warrant careful study," said House Financial Services ranking member Spencer Bachus, R-Ala.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com.