The proposal to house within the Federal Reserve what was initially planned as an independent consumer agency has rekindled outcries from both sides of the debate – consumer advocates on one and business groups on the other.
The plan is the closest one to a compromise to emerge, and it is still on the table after long days of talks in the Senate. But it still faces difficult hurdles ahead, with the Central Bank’s record of protecting consumers from unfair or predatory practices at the heart of the argument.
At stake is the degree of authority that a new agency will hold over the most common loan products held or sought by Americans, including credit cards, mortgages and payday loans.
The key players — Sen. Christopher Dodd, D-Connecticut, the chairman of the Senate Banking Committee, and Sen. Bob Corker, R-Tennessee, a Republican member of the committee – hatched out the proposal in recent days. But other Democrats and Republicans on the committee expressed concern, if not outright opposition, over the Fed plan, which is pivotal to passing broad financial system oversight reform.
Among groups that have stood firmly on each side of the issue for several months, passions ran high Tuesday as the Fed proposal surfaced.
“The Federal Reserve is the last place an agency designed to protect consumers should be housed. It will be more waste of taxpayers’ money because we’ll have to pay for the appearance of protection without getting any.” said John Taylor, president & CEO of the National Community Reinvestment Coalition.
Consumer groups say the Fed has failed in ensuring that financial products for carry fair terms for borrowers without excessive or punitive fees and rates. Critics also fault the Central Bank for not doing enough to restrain the mortgage industry from the subprime lending that fostered the housing bubble and the financial crisis.
“The Fed had its chance. It could have acted,” said Robert Weissman, president of Public Citizen. “Why in the world would we locate a fresh effort at consumer protection in an agency that so clearly evidenced its hostility to consumer protection when it mattered?”
Consumer advocates want a consumer watchdog with complete rulemaking authority and separate from regulators.
Banking and business groups are equally adamant in opposing sweeping powers for a new agency, fearing excessive reach in authority beyond banking institutions.
“Proposals that simply house the CFPA (Consumer Financial Protection Agency) within another federal agency, but continue to give it the same broad and overlapping regulatory authority, will not fix the CFPA gency, nor the harmful impact it will have on small businesses and consumers,” said Ryan McKee, senior director of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.
The U.S. Chamber contends that small businesses will be adversely affected in their access to credit by a powerful consumer agency’s standardizing of financial products for the average consumer.
