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A Republican on the U.S. congressional panel set up to oversee the government's financial rescue is pressing for increased scrutiny of the program, which he argues is being misspent on the restructuring of the auto industry.

Rep. Jeb Hensarling, R-Texas, a member of the five-person Congressional Oversight Panel, said Friday he will push for hearings on the restructurings of General Motors Corp. (GM) and Chrysler LLC. The auto makers have received billions of dollars in bailout funds from the Troubled Asset Relief Program, which was put in place under the Bush administration to stabilize the financial system.

In a letter to Treasury Secretary Timothy Geithner, Hensarling said he is "extremely concerned" about how the Treasury Department is handling negotiations involving the United Auto Workers and GM's unsecured lenders. Under a government-backed deal, the UAW would get a 39% equity stake in GM, while unsecured lenders, who are owed more money, would receive a 10% equity stake.

"The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company's diverse group of bondholders," Hensarling wrote.

Hensarling said in an interview that he planned to press Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to hold hearings on the matter. A spokesman for Frank said the chairman would decide whether to hold a hearing once he received a formal request.

Hensarling accused the Obama administration of using TARP funds to advance the agenda of organized labor, rather than to stabilize banks. He said the government-backed GM proposals appear to subvert "rules inherent in the U.S. bankruptcy code that define the rights of creditors in the event of a default or a bankruptcy filing."

Hensarling warned that the proposals would discourage creditors from providing capital to troubled institutions.

"The wisdom of vilifying and punishing investors...at a time when we desperately need the voluntary capital of investors, as opposed to the trillions of involuntary capital of taxpayers, it's just an incredibly foolish policy," Hensarling said.

-By Josh Mitchell, Dow Jones Newswires; 202-862-6637; joshua.mitchell@dowjones.com