Members of Fed’s Consumer Council Want Fed Out of Consumer Regulation

In 1976, the Federal Reserve established its Consumer Advisory Council at the direction of Congress to advise the central bank on its responsibilities tied to consumer issues. Fed Chairman Ben Bernanke generally attends the council’s meetings in a Fed dining room three times a year, and even suggested to lawmakers last year that they could bolster the group as one way to improve the Fed’s performance on consumer protection.

But some members of the council, even as they plan for their next meeting later this month, don’t seem to think very highly of the Fed on this front.

Today, 19 current and former members of the group wrote to Senate Banking Committee Chairman Christopher Dodd (and the rest of the panel) urging him not to place a proposed Consumer Financial Protection Agency within the Fed in his proposed legislation. Nor do they want it in any other regulatory agency. “Consumers will be served only by having the CFPA as an independent agency where the primary responsibility is consumer protection,” they wrote.

The full text of the letter below:

Friday, March 12, 2010

Chairman Christopher Dodd
448 Russell Building
Washington, DC 20510

Cc: Senate Banking Committee

Dear Chairman Dodd,

We the undersigned current and former members of the Federal Reserves Consumer Advisory Council (CAC) are writing to express our support for a strong and independent Consumer Financial Protection Agency (CFPA), not housed within any other existing agency. Even an agency such as the Federal Reserve, which already has a Division of Consumer and Community Affairs, which includes the CAC and direct input from consumer, advocates, has competing priorities that undermine its ability to strongly enforce consumer protections.

Our service advising the Federal Reserve on consumer protection issues spans two decades. Those of us who are currently serving on the CAC are raising these concerns in that forum. Many of us have met with Federal Reserve Chairman Alan Greenspan and Chairman Ben Bernanke over the years to express our concerns about how consumers have been treated by financial institutions. Collectively, we raised concerns about unfair and deceptive mortgage lending, overdraft fees, credit card abuses and a host of other consumer lending abuses. We proposed ideas for consumer protections that we felt were necessary given what was happening in the capital and credit markets. The foreclosure crisis and the credit crunch bore out our concerns, but we take little comfort in being right.

However, given the validity of our concerns, we think it would be imprudent to give the Federal Reserve or any other existing agency primary consumer protection responsibilities. No agency, including the Federal Reserve, has a strong record in this regard. In 1994 Congress gave the Federal Reserve the power to outlaw unfair and deceptive practices in the mortgage market. The Federal Reserve waited until 2008 to issue their rule, long after the problem had become a crisis and after the market had collapsed. During that time, we and other consumer protection experts issued reams of comment and testimony calling on them to exercise their authority to protect consumers.

The Federal Reserve has its hands full with responsibilities relating to safety and soundness and monetary policy. Consumers will be served only by having the CFPA as an independent agency where the primary responsibility is consumer protection. We urge you reconsider your proposal for the CFPA to be within any other agency.

Sincerely,

John Taylor
President & CEO
National Community Reinvestment Coalition
Washington, DC

Stella Adams
Principal
SJ Adams Consulting
Durham, North Carolina

Malcolm M. Bush
Research Fellow
Chapin Hall, the University of Chicago.
Chicago, Illinois

Constance K. Chamberlin
President & CEO
HOME of Richmond
Richmond, VA

Kathleen Engel
Professor of Law
Suffolk University
Boston, MA

Thomas P. FitzGibbon, Jr.
Principal
BSI
Glenview, Illinois

Dwight Golann
Professor of Law, Former Chair of the CAC
Suffolk University
Boston, MA
Ken Harney
Syndicated Columnist
Washington Post Writers Group

Kirsten E. Keefe
Staff Attorney
Empire Justice Center
Albany, NY

Sarah Ludwig
Co-Director
Neighborhood Economic Development Advocacy Project (NEDAP)
New York, New York

Ruhi Maker
Senior Staff Attorney
Empire Justice Center
Albany, NY

Patricia McCoy
Director, Insurance Law Center and Connecticut Mutual Professor of Law
University of Connecticut School of Law
Hartford, Connecticut