Dodd: Consumer Watchdog to have ‘Autonomous’ Rule Authority

Sen. Christopher DoddA new consumer protection ‘bureau” with sweeping authority over credit cards, mortgages and other financial products will be housed within the Federal Reserve but retain a degree of autonomy, according a new outline of financial system overhaul unveiled today.
The historic reform would also create a separate systemic-risk council with the power to dismantle an institution deemed to pose a threat to the U.S. economy, “but only as a last resort.”
Senate Banking Committee Chairman Christopher Dodd, D-Connecticut, outlined the reform proposal containing some bipartisan moderation in hopes of drawing support from Republicans. One of those concessions was keeping the new consumer agency – a hot button issue – housed within the current regulatory structure, instead of a stand-alone agency as favored by consumer advocates.
In Dodd’s outline, the new agency has the title of Consumer Financial Protection Bureau. But Dodd stressed that the Fed would not have authority over the new entity.
It would be “able to autonomously write rules for consumer protections governing all entities – banks and non-banks – offering consumer financial services or products.” Its authority would stretch over “all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators) and large non-bank financial companies, such as large payday lenders, debt collectors, and consumer reporting agencies.”
Its chairman would be appointed by the President, and it will oversee banks and credit unions with assets of more than $10 billion.
Sen. Richard Shelby, R-Alabama, the ranking Republican on the Senate banking committee, said it is critical to have the time to review the 1,336-page bill.
“Republicans want to reach a bipartisan agreement with Chairman Dodd on substantive financial reform that protects taxpayers, strengthens our economy, and preserves the competitiveness of our financial markets,” Shelby said in a statement. “Over the coming days, my Republican Banking Committee colleagues and I will give Chairman Dodd’s proposal the serious consideration it deserves.”
In a separate provision in Dodd’s Bill, major financial institutions with more than $50 billion in assets will have new oversight council.  The goal of Democrats is to avoid the “too big too fail” policy that generated a generous bailout policy to insurance, banking and mortgage giants during the financial crisis.
The new Financial Stability Oversight Council would sit nine members and be chaired by the U.S. Treasury Secretary. Much like the oversight entity in a House partisan bill approved in December, the council in Dodd’s bill will have the power to “divest” some of the holdings of a company considered a threat to economic stability if it were to collapse on its own.
The oversight entity would be “able to approve, with a 2/3 vote, a Federal Reserve decision to require a large, complex company, to divest some of its holdings if it poses a grave threat to the financial stability of the United States – but only as a last resort.”
The reform bill’s other major component would restrict the proprietary trading activities of major banks, a plan modeled after the so-called Volcker Rule.
The plan first proposed in January by former Fed chairman Paul Volcker, who is one of President Obama’s top economic advisors, would separate speculative trading from the banks’ traditional role of protecting the federally-insured bank accounts of Americans.
Regulators would be required to implement rules “to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds.” The rules would apply to banks, their affiliates and “nonbank financial institutions supervised by the Federal Reserve.”

One thought on “Dodd: Consumer Watchdog to have ‘Autonomous’ Rule Authority

  • March 16, 2010 at 3:23 pm
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