Why Does Chris Dodd Want To Put the Fed In Charge of Consumer Protection?

The long-awaited Consumer Financial Protection Agency will come a step closer to reality Monday when Sen. Christopher Dodd (D-Connecticut) introduces his new bill of financial regulations.

There are many potential problems with the CFPA -- among other things, that it will hurt consumers by driving up compliance costs and limiting choice, and that it will police small matters while not making any difference on the big ones.

But the quizzical quidnunc from the Nutmeg State has packed an even less pleasant surprise into the bill. The CFPA will apparently be part of the Federal Reserve Bank.

Here are the basics of Dodd's expected proposal. Given the toxicity of the Fed in public opinion, it's not surprising that Dodd -- no stranger to the kind attentions of banks and financial services giants -- blames the shift from an independent to a Fed-controlled CFPA on the necessity of compromising with Senate Republicans.

But it's hard to see how anybody could be happy with a Fed-dependent CFPA. On the left, National Community Reinvestment Coalition president John Taylor says:

The Federal Reserve is the last place an agency designed to protect consumers should be housed. It will be more waste of taxpayers’ money because we’ll have to pay for the appearance of protection without getting any.

As early as 1998 and 1999, we urged Chairman Greenspan and then later Chairman Bernanke to take action against lenders targeting high cost loans to blacks and Hispanics. We presented them hard, cold data backing up these practices, and they did nothing. They refused to send cases to the Justice Department. It took the Federal Reserve board fourteen years to issue rules related to unfair and deceptive lending practices. This was long after the power was granted to them in 1994, and long after we pleaded and cajoled them to do something and, more importantly, after the market collapsed.

On the right, Big Government has ongoing critical coverage of the CFPA and Dodd's erstwhile negotiating partner Sen. James Corker (R-Tennessee).

The Fed's own Consumer Advisory Council warns against the new arrangement for the CFPA.

Even if you believed in both effective regulation and central banks, there would be plenty of reason to doubt the two functions could be combined. The Fed's mixed history of consumer protection -- evident most recently in circumstantial evidence that then-New York Fed president Tim Geithner may have helped disguise Lehman Brothers' dire financial condition -- stems from the essential fact that the Fed is not in the business of protecting consumers. It's not really in the business of acknowledging that consumers exist at all. The Fed's job is to manipulate the money supply. The Departments of Treasury, Commerce, and Justice all seem like more logical homes for a consumer agency.

There may be some tactical reasons why a CFPA within the Fed might be more circumscribed and thus less dangerous. Unfortunately, a regulator's danger to established businesses is rarely the issue. The problem is the ability of legacy players to use regulation against potential challengers. In this respect, the Fed's allegiances clearly are not -- and should not be -- with consumers.

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  • Forrest||

    Q: What's the difference between a libertarian telling us where a consumer protection agency should be housed, and an anti-choicer telling us what color to paint the waiting room in the abortion clinic?

    A: The anti-choicer might have a worthwhile opinion.

  • Tim Cavanaugh||

    That's a really long setup for not a lot of punchline.

  • Suki||

    +1

  • Sean W. Malone||

    +1 to Tim...

    And also, Libertarians are really the best people to analyze effectiveness of legislation. The fact that we don't generally want any at all means that if something actually gets our seal of tentative approval, it's probably the best it's going to get.

  • ed||

    We're special alright.

  • Joel||

    In...you know...the good way.

  • Sean W. Malone||

    Meh... Alls I'm saying is that if a piece of legislation passes even so much a tentative "ehhh, it's ok-ish", from somebody like me or most of the folks around here, you're probably looking at a law that is the best any politician will ever offer.

    Since we don't really have a party to pander to, and since we aren't interested in redirecting other people's resources to ourselves, it's a lot more likely that if you give libertarians a law to parse - the result will be about an answer of how to maximize legal equality and individual liberties... And isn't that ultimately the stated goal?

    I mean, I get that most politicians don't want legislation to result in legal equality or anything remotely related to individual liberty - and they would much rather a piece of legislation just did what they usually intend: to take from one or more groups of people to give to the group who's keeping them in power.

    If more people recognized this practice as corrupt & unjust, perhaps The Mustache would have made a better showing in 2008, but whatever...

  • Anonymous Backstabber||

    Aristocrats!

  • GILMORE||

    Does anyone else get *really, really bored* with the people who come here to point out, "this is a *biased publication* because it has an openly political slant"... but then fail to actually say anything material at all about the topic at hand, but just go, "your opinions are therefore irrelevant"...

    I mean, god forbid half the people here aren't in fact "libertarian" in the strict sense, but just like reading about these topics here because (gasp) no one else does the slightest bit of critical thinking about them? - or worse - that almost all other news organizations simply take broadly 'political' stances For/Against policies, without ever really getting into any real debate about *why* the given policy is so awesome/execrable.

    Its also worth pointing out that this type of perfunctory dismissal is a rhetorical favorite of Lefties, who nominally consider themselves the champions of pluralism, open debate, tolerance, etc.

    Whatever, Tim still gets a +1

  • Warty||

    I've been hoping against hope that Forrest is Neil/Cesar's triumphant, long-awaited return. My hope gets a little dimmer with each post.

  • Tim Cavanaugh||

    Does Gary Gunnels/Merovingian et al. currently have an alias, or has he vanished into the ether?

  • Warty||

    I don't believe I've seen him lately, now that you've mentioned it.

  • LarryA||

    Dodd … blames the shift from an independent to a Fed-controlled CFPA on the necessity of compromising with Senate Republicans.

    I thought this was the Congressional session where Democrats didn’t need to get along with Republicans. If Dodd can’t pass his bill with his majority it should tell him it’s maybe not a good idea.

    Not that I’m holding my breath.

  • Johnny Longtorso||

    A chart showing the complicated set of current regulators. Oddly enough, there is only a morass of Wall Street regulation when they want to 'simplify' it, but no regulation whatsoever when they want to blame 'unregulated' markets.

    Look at this chart and tell me anything has been 'deregulated'.

    Wait, You Thought Wall Street Wasn't Regulated?

  • Suki||

    Good Morning reason!

    Hi JL!

  • ||

    It's the wrong solution to a non-existent problem--anybody that blames the credit crisis on people not understanding the loans they took out is watching way too much news...

    This always happens at this point in the economic cycle. And it's highly doubtful this will get passed anyway, but even if it does, the economic cycle will have its way with the regulators, same as it ever was.

    Nothing can stop credit from tightening when it's supposed to; nothing can stop it from expanding when it wants to either.

    ...there are things you can do to elongate the process and make it more painful, and that's what this legislation would certainly do, but the availability of credit will gobble up this mandate, just like it's done in the past...

    When the loans are back on offer, and the world turns on the credit spigot again, what politician in his right mind would stand between consumers and the loans they want? You can't defy gravity by will power alone...

    Not even if you're Chris Dodd.

    P.S. He's just beggin' for Peter Schiff to take over his seat, isn't he? All those banker commuters to NYC, and there he is, tryin' to get between his constituents and their future bonuses?

    No wonder he's not seeking another term.

  • ||

    "This always happens at this point in the economic cycle. "

    "You can't defy gravity by will power alone...

    Not even if you're Chris Dodd."

    I wish more people would understand this.

    +1

  • Jesus||

    "You can't defy gravity by will power alone..." I can

  • Julius Caesar ||

    Gravity is a bitch. I think that's what Soothy told me

  • Brutus||

    Happy Anniversary!

  • Caesar||

    Thank you. I was just planning on taking it easy and laying down all day. What about you?

  • Caesar||

    I just need to get to the Senate first.

  • BeesInTheBrain||

    Wouldn't it be cheaper to run advertisements explaining to consumers the wisdom of NOT FUCKING BUYING THINGS THEY CAN'T AFFORD.

  • Sean W. Malone||

    You mean, like THIS?

  • Sean W. Malone||

    Or perhaps if I had the actually correct link... Like this instead?

  • ||

    It would probably be more effective too. But then government wouldn't have the power they desire...

  • ||

    Quidnunc? Well done indeed.

  • ||

    Why does Chris Dodd want to do anything except crawl into a hole and hide for a hundred years?

    Because he has no shame?

  • Some Guy||

    Why Does Chris Dodd Want To Put the Fed In Charge of Consumer Protection?

    Because they've done such a great job protecting the value of the currency?

  • SIV||

    I really hate DST.Especially this early in the year. I blame Bush.

  • ||

    The Fed's mixed history of consumer protection -- evident most recently in circumstantial evidence that then-New York Fed president Tim Geithner may have helped disguise Lehman Brothers' dire financial condition -- stems from the essential fact that the Fed is not in the business of protecting consumers. It's not really in the business of acknowledging that consumers exist at all.

    Heh, depends on how you define "consumer" in this context. One who partakes of a good or service, in this case a special favor from The Fed, is by definition a consumer. All in the name of the product of "Too big to fail." A product that should not have been or be offered either to the connected few or the public at large.

  • Rich||

    the quizzical quidnunc from the Nutmeg State

    That's pretty good.

    Almost makes me wish he were running for re-election. ;-)

  • adam||

    Really? You don't see why it might make sense to have the safety and soundness regulator the same one doing consumer financial protection? The two goals (at least as conceived by democrats) are at odds with one another much of the time, so two different regulators, each focused on its own goal, will be pulling banks from both ends. They will have to maintain a sound balance sheet, while at the same engaging in politically correct lending practices. The only thing that has muted the politically correct lending practices in the past is the fact that the regulators were more concerned with the balance sheets. An agency with its only goal as consumer financial protection won't care about the balance sheet.

  • ||

    Assuming that the Fed will make will actually make consumer protection its goal. We can't even audit them, so how will we know what their up to, even as "consumer protectors?" At least we could(in theory) check up on the CPFA. I think the Fed has enough going on, consumer protection might be a bit much for them at this point.

  • Ted S.||

    Is anybody else having trouble connecting to the Washington Independent article?

  • ||

    ROTFL, that dude just looks corrupt as the day is long LOL

    Kes
    www.online-anonymity.us.tc

  • ||

    It will be more waste of taxpayers’ money because we’ll have to pay for the appearance of protection without getting any.

    Won't that be true regardless of where it is housed?

  • Xeones||

    My hope gets a little dimmer with each post.

    Your hope can never attain the dimness of Forrest.

    Why Does Chris Dodd Want To Put the Fed In Charge of Consumer Protection?

    Dunno. Because he's a raging, corrupt moron?

  • Invisible Finger||

    The Departments of Treasury, Commerce, and Justice all seem like more logical homes for a consumer agency.

    Treasury? They're as beholden to Wall Street and the Fed.

  • Invisible Finger||

    "and" = "as" (dammit!)

  • ||

    But the quizzical quidnunc from the Nutmeg State has packed an even less pleasant surprise into the bill.

    ...sounds like a real quizzibunk.

  • James||

    I would not trust the fed to give me a short term loan much less provide consumer protection.

    How frustrating.

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