Dodd Proposes Giving Fed the Task of Consumer Protection
By SEWELL CHAN
Published: March 2, 2010
WASHINGTON — In an effort to secure Republican support for an overhaul of financial regulations, the chairman of the Senate Banking Committee on Monday proposed giving the Federal Reserve responsibility for protecting consumers from abusive and deceptive financial products.
The new plan, described by an official briefed on the negotiations, was the latest iteration of an idea that has divided members of the committee, largely along party lines, and has been the major barrier in the path toward the most significant overhaul of banking rules since the Depression, a priority of the Obama administration.
The chairman, Christopher J. Dodd, Democrat of Connecticut, circulated a proposal last week to create a Bureau of Financial Protection under the Treasury Department.
On Monday, the senior Republican on the committee, Richard C. Shelby of Alabama, having rejected that plan, put forward two of his own. One would create a consumer protection unit within the Federal Deposit Insurance Corporation, while the other would establish an interagency consumer protection council. In both cases, the new entity would have rule-making authority but limited enforcement powers.
Mr. Dodd countered with a proposal to expand the mandate for the Fed, which has traditionally focused on monetary policy, by establishing a consumer division within the central bank with power to write and enforce rules. Mr. Dodd was in negotiations with Bob Corker, a Tennessee Republican who sits on the committee, over the latest proposal, on Monday.
The White House proposed legislation to create a freestanding Consumer Financial Protection Agency last June, and the House passed a regulatory overhaul creating such an agency in December.
Banking industry groups oppose the proposal, contending that it would constrain access to credit and interfere with the duty of regulators to ensure the safety and soundness of banks.
The advocates, mindful of fierce Republican opposition to a stand-alone agency, have said that they are less concerned about where the entity is housed than the scope of its authority and the independence of its leadership and budget.
The debate over consumer protections has at times threatened to overshadow other aspects of the overhaul, which include more transparent trading of over-the-counter derivatives; the establishment of a council to detect systemic financial risks; and the creation of a process to dissolve an ailing company before it becomes too big to fail and requires a government bailout.