WASHINGTON – Senate Banking Committee Chairman Christopher Dodd introduced a financial reform bill today that would expand the powers of the Federal Reserve, widely seen as ignoring its enforcement powers during the financial meltdown, by among other things, putting a new consumer financial protection agency inside the Fed.
The proposal, which has been criticized by Republicans on the Senate panel, largely keeps the consumer enforcement regime for banks and credit unions, by leaving their chief examiner for consumer issues at their current regulator but would set the new consumer agency as the creator of consumer rules-something the Fed is already charged with for most financial products.
Dodd's bill would also give the central bank new powers to enforce consumer rules for financial products over non-financial companies for the first time.
The Connecticut Democrat, who has announced his retirement at the end of the year, decided to keep the Fed's consumer compliance powers largely intact despite objections by a group of 19 former members of the Fed's Consumer Advisory Council who issued a letter over the weekend scoring the Fed's lack of enforcement on regulations governing subprime mortgages, overdraft fees, credit cards and other loans leading up to the financial crisis. "Consumers will be served only by having the CFPA as an independent agency where the primary responsibility is consumer protection," the group told Sen. Dodd.
Dodd's bill differs from a financial services measure passed by the House late last year that would create an independent consumer agency, which is backed by the Obama administration. But several members of Dodd's committee objected to the creation of a new federal bureaucracy that would be divorced from the safety and soundness concerns of current bank and credit union regulators and how they might be impacted by examinations or enforcement actions of consumer regulations.
In anticipation of an independent consumer agency, NCUA created its own office of consumer affairs the beginning of this year and budgeted $1.5 million for the new office for 2010. Agency officials conceded they hope the new office would dissuade Congress from bringing credit unions under the new consumer protection scheme.
The Fed's new consumer agency would have an independent director appointed by the President and would be funded from the Fed's budget. It would have independent rule writing authority to autonomously write rules for consumer protections governing all entities - banks and non-banks - offering consumer financial services or products.
It would have authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators) and large non-bank financial companies, such as large payday lenders, debt collectors, and consumer reporting agencies.
It would also create a new office of financial literacy, something NCUA's new office is also doing.
The Dodd bill also has some of the main features of the House-passed bill and would create a so-called Too-Big-To-Fail panel to oversee the potential problems and a break-up of huge financial firms. It would set new trading rules for derivatives. It would also require large hedge funds, those over $100 million, to register with the Securities and Exchange Commission.
