Official says loans are Fed’s province

Consumer protection plan draws criticism

By Steve Matthews and Alison Vekshin
Bloomberg News / July 17, 2009
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WASHINGTON - A Federal Reserve governor, Elizabeth Duke, yesterday opposed the Obama administration’s plan to strip the central bank of its authority to oversee consumer-lending practices.

“The Federal Reserve Board believes there is a compelling case for leaving consumer protection rule-writing functions within the Federal Reserve and supervision with the agencies responsible for prudential supervision,’’ Duke told the House Financial Services Committee.

President Obama is proposing to revamp financial rules, including giving the Fed authority for monitoring companies whose collapse could damage the financial system. The plan would take consumer-protection powers from the central bank and create a Consumer Financial Protection Agency to oversee products such as mortgages and credit cards.

“The Federal Reserve has the resources, the structure, and the experience to execute an ongoing comprehensive program for effective consumer protection in financial services,’’ Duke said. “We believe that replicating in another agency the deep expertise and full array of functions embedded within the Federal Reserve and used to support our consumer protection program would be enormously challenging.’’

Last week, the president of the St. Louis Fed, James Bullard, said creating the new agency could lead to conflicts between existing agencies. A “better model’’ would have the same agency involved with protecting consumers and ensuring the “safety and soundness’’ of banks, he said.

Duke suggested Congress mandate that consumer protection become a core mission at the Fed, similar to monetary policy.

Democrats on the panel expressed support for the separate agency and were skeptical about letting the Fed retain the authority.

The Fed gained powers under a 1994 law to write rules boosting consumer protections in mortgage lending, “yet it chose not to do anything or issue any rules until 2008,’’ said Representative Gregory Meeks, a New York Democrat.

“In hindsight, we could have and should have acted,’’ Duke responded. “Since that time, the Fed has been very proactive’’ in strengthening protections in mortgage and credit-card lending.

She vowed the Fed would “enforce all consumer regulations.’’