By Sally Greenberg, NCL Executive Director
Yesterday’s papers indicate that one house of Congress – the Senate – has reached a bipartisan deal to give the Federal Reserve primary responsibility for protecting consumers from abusive and deceptive financial products. But it may not be the best deal for consumers. Representative Barney Frank (D-MA), the House Chairman of Financial Services, whose committee oversees the financial community, said he was “dumbfounded” by the idea: “When I first heard it, I thought it was a joke.”
In February of this year, a broad coalition, of which NCL is a member, sent a letter to Senate Banking Committee Chairman Chris Dodd (D-CT), thanking him for his strong efforts to enact an independent Consumer Financial Protection Agency (CFPA). The coalition, Americans for Financial Reform (AFR), argued that existing bank regulators had “utterly failed to protect consumers from abusive lending practices in the marketplace because they were not independent of the lenders they regulated and because they subordinated consumer protection concerns to a dangerously shortsighted focus on the near-term profitability of these institutions.”
So, this news coming from the Senate to give the Fed heightened consumer protection powers has been received with very mixed reviews, particularly from consumer advocates. The Fed has been accused of turning a deaf ear to consumer protection time and time again. The Fed has also at times appeared to be a federal agency far more concerned with the health of the business community and keeping interest rates low than with the protection of the little guy. However, others disagree. A former Fed governor, Mark Olson, believes the Fed has made a new commitment to carry out rigorous consumer protection and bank supervision.
We’ll see how this plays out in Congress. The point is that consumers need a tough, unyielding watchdog to reign in the abuses of the credit card company and banks. I’m willing to listen to the arguments, but I too am skeptical that the Fed and its thousands of staff could have become pro-consumer overnight.