Back in March, Mary Kane of the Washington Independent made a great catch. She wrote about the Consumer Advisory Council (CAC), the consumer protection group at the Federal Reserve. Mary on the agency: “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.”
Here’s my favorite part. Mary went through transcripts of meetings with this group when they were discussing the CARD Act, the credit card regulation originally put into place by the Federal Reserve and later accelerated through a law passed by Congress. Here’s a great quote:
Edna Sawady, CAC chairwoman: Last month, the Board issued a proposed rule to implement the provisions of the Credit Card Act that go into effect on February 22, 2010. I’m sure you will get a kick out of the date, because you’ll hear a lot of discussion of what’s going to happen on February 22, 2010. I’ll just give you a sneak preview — don’t go to the grocery store.
Kevin Rhein, Wells Fargo executive: Or buy gas or anything else.
Read that again. This is what consumer financial protection at the Federal Reserve has looked like. What a disgusting way of viewing the topic. “If we try to fix the broken consumer financial market there will panic, chaos, human sacrifice, dogs and cats living together… mass hysteria!” No numbers, no argument for why regulation would be important here, nothing.
Notice how the discussion tone moves seamlessly from from the regulator to the banking executive. We look from outside from regulator to banker, and from banker to regulator, and from regulator to banker again; but already it was impossible to say which was which.
I really enjoy reading and writing about how the Federal Reserve dropped the ball on consumer financial protection. Both the fraud element and how the Federal Reserve didn’t enforce the laws already on its books is well documented. From time to time we’ve dug up Federal Reserve minutes about how wrong they got it.
My favorite is this meeting from July 2000 held by the Federal Reserve in North Carolina, with Martin Eakes of Center For Responsible Lending and Self-Help and community bankers screaming at the top of their lungs about subprime mortgages and dubious home equity loans. Governor Gramlich’s tone in response comes across as ‘why are these hippies wasting my time and why isn’t this meeting over yet?’ Guess who turned out to be right.
The battle for the CFPA was a major one. Remember when the Chamber of Commerce crated a webpage simply titled: StopTheCFPA.com? It was a bold move, saying to reporters and their funders that they would kill this. And they didn’t. But it is in the Federal Reserve. It isn’t an independent agency. The Federal Reserve could be a powerful place for this agency, perhaps even more so than if it was independent, but it is far more crucial that the first appointment is an outsider. The Federal Reserve’s track record has been horrible, and it has been horrible in the worst of crony ways. An outsider with a bold plan for the agency could use the strengths of the Federal Reserve with incorporating few of the weaknesses.
There are certainly a lot of people qualified on the inside. But if all these people want to do is climb the Federal Reserve’s ladder, keeping this agency quiet and unproductive is going to be a major gold star on the resume. Elizabeth Warren is an outsider here, and her actions on the Congressional Oversight Panel show that she can stand up to the Federal Reserve. And without an outsider to the regulatory apparatus leading the CFPA, with a generic Federal Reserve choice, we could end up with yet another person nodding along with the banking executives at how all these lucky duckies don’t appreciate anything.