Bernanke balks at plan for consumer protection agency
He says duties should remain under the Fed
WASHINGTON - Ben Bernanke put himself at odds with the Obama administration yesterday by resisting its plan to create a consumer protection agency for risky financial products. The Federal Reserve chief said those responsibilities should stay with the central bank.
Bernanke’s pushback on the White House plan comes at a politically delicate time for the Fed chairman. His term expires early next year, and President Obama will have to decide whether to reappoint him.
In his second straight day on Capitol Hill, Bernanke argued that the Fed has expertise that would be difficult to replicate at a new agency. Consumer oversight, he said, coincides with the Fed’s mission to oversee the safety and soundness of banks.
Addressing the Senate Banking Committee, Bernanke defended the Fed’s record. Yet he acknowledged “that the Federal Reserve did not do all it should have at certain times in the past.’’
Consumer groups and lawmakers have blamed the Fed under then-chairman Alan Greenspan for failing to crack down early on dubious mortgages practices. High-risk mortgages fed the housing boom and led to its collapse.
Bernanke, who took over the Fed in February 2006, eventually pushed through tougher rules. Critics, though, said they came too late to ease the mortgage crisis.
More recently, lawmakers have pressed the Fed to speed its adoption of rules to better protect Americans from abusive credit card practices.
The Fed plans today to issue a proposal to boost disclosures on mortgages and home equity lines of credit. It will include new rules covering the compensation of mortgage originators.
“We’re going to ban the practice of tying the compensation to the type of mortgage - having prepayment penalties, for example,’’ Bernanke told lawmakers.
The administration has proposed a new consumer-protection agency as part of a broader revamp of the nation’s financial rules. The agency would police deceptive practices in credit cards, mortgages and other products. Such oversight is now scattered among the Fed and other agencies.
If approved by Congress, the Consumer Financial Protection Agency could curtail or ban a host of dubious - but lucrative - bank practices. They include ballooning mortgages, excessive credit card rates and surprise overdraft fees.
“I understand why some would want to see a new agency that would be fully committed to this area. And, I’m not criticizing that,’’ Bernanke said. “I’m simply saying that . . . we believe we can continue to do good work in this area.’’
White House officials downplayed Bernanke’s resistance to the Obama plan. They said they weren’t surprised by his comments, since Fed member Elizabeth Duke spoke out last week against the idea of a new agency to monitor financial products.
In his testimony, Bernanke said the Fed should not only keep its consumer protection duties, but also take other steps to bolster oversight.
The Fed chief said Congress could amend the Federal Reserve Act to make consumer protection a “major goal’’ of the central bank.