By Sewell Chan
March 12, 2010
As the Senate contemplates creation of a consumer financial protection agency within the Federal Reserve, opposition to the idea has emerged from an unexpected quarter: the Fed’s Consumer Advisory Council.
On Friday, 18 former or current members of the council, which was created in 1976 to give the central bank input on consumer credit protection issues, sent a letter to the chairman of the Senate Banking Committee, Christopher J. Dodd. They urged Mr. Dodd, a Connecticut Democrat, to push for an independent consumer agency that is not housed within another governmental entity.
“We think it would be imprudent to give the Federal Reserve or any other existing agency primary consumer protection responsibilities,” they wrote. “No agency, including the Federal Reserve, has a strong record in this regard.”
The letter was organized by the National Community Reinvestment Coalition, an association of 600 community groups that advocates for access to credit and savings in low-income and working-class areas. Its president, John Taylor, is a former member of the advisory council.
Members of the Consumer Advisory Council, who serve three-year terms, are not paid.
The signers of the letter said that for years the Fed had neglected to crack down on unfair lending practices. “Collectively, we raised concerns about unfair and deceptive mortgage lending, overdraft fees, credit card abuses and a host of other consumer lending abuses,” the letter said, adding that members had made numerous recommendations that went unheeded.
The letter added: “The foreclosure crisis and the credit crunch bore out our concerns, but we take little comfort in being right.”
Last year, the Obama administration proposed an independent Consumer Financial Protection Agency, and the House adopted a comprehensive financial regulatory overhaul containing one. But the Senate has been bogged down in a debate over it.
Mr. Dodd had told Senate Republicans that he would agree to house the agency within the Fed, as long as it had an independent director, appointed by the president, and broad power over rules governing mortgages, credit cards, payday loans and other products.
Mr. Dodd plans to introduce his regulatory proposal, without Republican support, on Monday. It is not clear if his proposal will place the consumer agency inside the Fed.
Mr. Dodd has expressed frustration at the Fed’s past inaction, notably the central bank’s failure to halt unfair and deceptive mortgages until 2008 after being empowered to do so in 1994.
“How many times have we talked about that legislation that passed in 1994?” he asked at a news conference on Thursday. “And the Federal Reserve didn’t do anything when it came to promulgating regulations that could have avoided the catastrophe when it came to home mortgages.”
The 18 signers include three current members of the advisory council: Kathleen Engel, a law professor at Suffolk University in Boston; Kirsten E. Keefe, a lawyer at the Empire Justice Center in Albany; and Dory Rand, executive director of the Woodstock Institute in Chicago.
“The Federal Reserve has its hands full with responsibilities relating to safety and soundness and monetary policy,” the letter stated. “Consumers will be served only by having the C.F.P.A. as an independent agency where the primary responsibility is consumer protection.”
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