Democrats Push Back On Dodd’s Proposal To Give New Consumer Protection Power To The Fed

Sen. Jeff Merkley (D-OR)

Sen. Jeff Merkley (D-OR)

Senate Banking Committee Chairman Chris Dodd (D-CT) has decided to float a regulatory reform proposal that, instead of creating an independent Consumer Financial Protection Agency (CFPA), would place a consumer protection division inside of the Federal Reserve. The move seems aimed at garnering some Republican support for regulatory reform, since the proposal comes from Sen. Bob Corker (R-TN), but Dodd is now starting to receive some pushback from other Democrats.

Until yesterday, Dodd had been rightly critical of the Fed’s utter neglect of its consumer protection responsibilities, calling it “an abysmal failure,” and noting that “for far too many years, far too many risky and abusive subprime loans were made.” Other Democrats evidently still feel the same way:

Sen. Chuck Schumer (D-NY): [I]n my 20 years of trying to get the Federal Reserve to properly protect consumers, it has been an uphill, and very often unsuccessful, battle. I am very leery of any consumer regulator being placed inside the Fed.

Sen. Sherrod Brown (D-OH): We’ve seen in the past that it hasn’t worked when consumer protection is not primary for any agency, for any group, that it get shuttled aside.

Sen. Jeff Merkley (D-OR): The question I would raise is, why the Fed? Why put consumer protection back in the Fed after it’s been so woefully neglected?

I asked earlier today whether Dodd was expecting House Financial Services Chairman Barney Frank (D-MA) to go along with his plan, after Frank worked very hard to get an independent CFPA through the House over opposition from Republicans and conservative Democrats. The American Prospect’s Tim Fernholz tracked Frank down, and it turns out that he is not pleased:

“I don’t like it. On the consumer agency think it is much too weak; when I heard it would be lodged in the Federal Reserve, I thought it was a bad joke,” Frank says. “The limitations over the powers, and the [exclusion of] pay day lenders — I’m not happy with what I’ve seen so far…“If the Senate were to send us what I’ve seen so far, I wouldn’t bring it it to the House [floor],” Frank says.

Schumer, Merkley, and Brown are all on the banking committee, where Dodd’s bill has to clear its first hurdle, so it’s unclear how Dodd envisions this moving forward. Plus, the committee’s ranking member, Sen. Richard Shelby (R-AL), said putting a consumer protection division within the Fed would be akin to “moving the Department of Agriculture to the Pentagon and housing it over there and yet be autonomous.” In one final complication, Sen. Jack Reed (D-RI), yet another banking committee member, has promised to propose an amendment on the Senate floor creating a strong CFPA, if Dodd somehow gets his bill out of committee.