Liberals wary of Federal Reserve role in consumer protection office

A compromise plan to create a consumer financial protection office at the Federal Reserve suffered a tough liberal backlash Tuesday.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Bob Corker (R-Tenn.) are trying to strike a bipartisan deal on financial overhaul legislation that has been held up primarily over disagreements on how to boost consumer financial protections.

As a compromise, they have discussed creating a consumer protection office at the central bank instead of a standalone regulatory agency, as originally proposed by President Barack Obama.

The administration has not ruled out this option, but the compromise is proving to be a tough sell to the Democratic base.

“It’s a horrible idea. It’s a terrible idea,” Sen. Byron Dorgan (D-N.D.) told The Hill. “I don’t support it and I’ll try to change it.”

Sen. Bernie Sanders (I-Vt.), a vocal critic of the Fed, said the central bank has a poor track record of protecting consumers, particularly in the run-up to the financial crisis.

“Consumers need real, real, real protection,” Sanders said. 

Senate Majority Whip Dick Durbin (D-Ill.) did not rule out the idea, but said it is a “very good question” why lawmakers should give the Fed more power over consumer protections.

Outside consumer advocacy groups that have been pushing for the administration’s proposal for a Consumer Financial Protection Agency (CFPA) said the Fed is a poor choice at which to locate a consumer protection regulator.

“Granting the Fed consumer protection authority would create a lapdog for Wall Street, not the watchdog consumers need,” said Carmen Balber of Consumer Watchdog.

Other Democrats, including Sens. Charles Schumer (N.Y.), Sherrod Brown (Ohio) and Jeff Merkley (Ore.), said they had concerns about the proposal, but they did not oppose it outright.

“I have significant reservations if it does not have independence, and I prefer it to be standalone,” Brown said.

Republican senators on Tuesday appeared cautiously open to the possibility, and said they were concerned less about where the office would be located than with limiting its power and scope to write and enforce rules over the industry.