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Worried About Housing a Consumer Agency at the Fed? Check Out the CAC’s Record

If you want to know why some consumer advocates and others are concerned about current financial regulatory reform proposals to house a Consumer Financial Protection Agency within the Federal Reserve, look no further than the experience of the Fed’s own Consumer Advisory Council.

The Council, which has generally drawn little public attention, was created by Congress in 1976 as the public’s link to the Fed, and it includes about 30 members, representing consumer advocates, the financial services industry, government, and academia. The CAC’s purpose is to give input and advice to the Fed on consumer protection issues. It meets three times a year.

Of course, the financial crisis — and the Fed’s inaction on regulating subprime mortgages — probably gives a clear glimpse into just how effective the CAC has been. Some 18 former and present members of the council earlier this month urged Sen. Christopher Dodd (D-Conn.), who chairs the Banking Committee, to fight for an independent consumer financial protection agency. They pointed out that the Fed largely ignored their worries about high-rate mortgages, credit card fees, and other lending abuses — not to mention their recommendations to remedy them over the years.

It’s a little worse than that. Some members also say the CAC is supposed to the consumer’s voice, but things never quite worked out that way. Their specific complaints: Over the years, industry officials outnumbered the consumer representatives at the meetings. Consumer reps felt their concerns weren’t heard. And the industry reps used their memberships on the CAC to lobby for their positions against regulation.

Dodd’s latest proposal calls for the CFPA to be an independent entity within the Fed — but existing bank regulators would have veto power over some of its decisions, including a Fed representative. That’s left more than a few regulatory reform watchers concerned.

I’m going to follow up with some public transcripts of CAC meetings — you can judge for yourself.

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