WASHINGTON (Legal Newsline) - U.S. Rep. Barney Frank, who introduced a consumer protection bill affecting state attorneys general, told a House committee Wednesday that the Federal Reserve should not be trusted to have consumers' best interest in mind.
The Democrat from Massachusetts made the remark during a House Financial Services Committee hearing concerning President Barack Obama's administration's plan to reform regulation of the financial industry. Treasury Secretary Timothy Geithner testified Wednesday in support of the plan, which is tied to legislation introduced by Frank in July.
H.R. 3126 would establish the Consumer Financial Protection Agency. Twenty-two state attorneys general have thrown their support behind Obama's plan.
"Their record of consumer protection is abysmal," Frank said about the Fed, according to a Financial Times report.
"It is turf - they never cared about consumer affairs. Safety and soundness is their main concern - they regard consumer affairs as a kind of a nuisance."
Ben Bernanke, the chairman of the Federal Reserve, testified before the Senate Committee on Banking, Housing and Urban Affairs in June that Obama's plan is not needed because the Fed can handle the issues.
"The Federal Reserve's combination of expertise in financial markets, payment systems and supervision positions us well to protect the interests of consumers in their financial transactions," he wrote.
Part of the Obama administration's plan for financial regulation reform calls for the creation of a Financial Consumer Coordinating Council that will "establish mechanisms for state attorneys general, consumer advocates and others to make recommendations to the Council on issues to be considered or gaps to be filled."
Obama's proposal noted that state attorneys general are currently left to "fill the gap" where mortgage companies not owned by banks fall.
Recently, the U.S. Supreme Court ruled that state attorneys general did have the authority to sue national banks, and Bank of America's Countrywide Financial Corp. agreed to pay $8.4 billion in a multi-state settlement of predatory lending allegations.
Frank's proposed legislation says, "Any state attorney general may bring a civil action in the name of such state, as parens patriae on behalf of natural persons residing in such state, in any district court of the United States or state court having jurisdiction of the defendant, to secure monetary or equitable relief for violation of any provisions…"
Twenty-one Democrats and one Republican (Hawaii's Mark Bennett) wrote Frank and three other members of Congress in August to show their support for Obama's plan to create the CFPA.
"The current financial crisis, caused in part by irresponsible subprime lending and inadequate oversight, has demonstrated the need for comprehensive and effective consumer protection and enforcement at the federal level," the letter says.
"We believe an independent federal agency combined with joint enforcement by state officials is the best option for meaningful consumer protection in this area."
Texas Attorney General Greg Abbott (R) did not participate in the letter to Frank.
The attorneys general who signed their names to the letter are: Arizona's Terry Goddard, California's Jerry Brown, Connecticut's Richard Blumenthal, Bennett, Illinois' Lisa Madigan, Iowa's Tom Miller, Louisiana's Buddy Caldwell, Maine's Janet Mills, Massachusetts' Martha Coakley, Minnesota's Lori Swanson, Minnesota's Jim Hood, Missouri's Chris Koster, Montana's Steve Bullock, Nevada's Catherine Cortez Masto, New Jersey's Anne Milgram, New Mexico's Gary King, North Carolina's Roy Cooper, Ohio's Richard Cordray, Oklahoma's Drew Edmondson, Oregon's John Kroger, Tennessee's Robert Cooper, Vermont's William Sorrell and West Virginia's Darrell McGraw.
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