Frank Urges Giving OCC, FDIC Loan Rule Powers: Criticizes the Fed's Approach, Weighs a Role for the States

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A month after House Financial Services Committee Chairman Barney Frank told the Federal Reserve Board to use or lose its power to ban unfair and deceptive banking practices, the Massachusetts Democrat said he wants to hand that power to two other agencies.

At a hearing Wednesday, Rep. Frank said the Federal Trade Commission Act should be amended to give not just the Fed but also the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. the power to police lending practices.

The Office of Thrift Supervision has similar authority, he said, but for reasons for which "no rational explanation is even conceivable, much less likely," lawmakers have denied the OCC and the FDIC the same right.

"My strong view now is that something should be done legislatively to correct that," Rep. Frank said.

Testifying on behalf of the American Bankers Association, Arthur Johnson, the chairman and chief executive of United Bank of Michigan in Grand Rapids, said he would support such a move, but only if the agencies issued uniform rules.

"It would be anomalous - and harmful - for the five federal agencies ... to adopt different standards of what is an unfair or deceptive act or practice," Mr. Johnson said.

But Rep. Frank said lawmakers learned from their experience with the Fair and Accurate Credit Transactions Act of 2003 that giving seven regulators the shared task of writing rules proved to be a disaster. The law is still not fully in effect, because regulators have not finalized the implementing rules.

That many regulators are "incapable of action," he said. "So that one doesn't work to me."

Rep. Frank criticized the Fed's approach of dealing with problems on a case-by-case basis. Not setting parameters first is inefficient, he said.

"It really isn't enough for consumer enforcement that the rule is 'OK, whenever you do something wrong, we'll tell you to stop doing it,' " he said. "There needs to be some incentive to stop doing it before you start doing it."

Rep. Frank tried to bolster his argument for reform by saying the current federal regulatory regime does not protect consumers adequately, because preemption has undercut state laws.

"The current set of tools and resources that the federal banking regulators have were configured in an era where the assumption was there was a lot of state consumer regulation going on," he said. "There is now, for national banks, virtually no state consumer regulation, certainly none that is specific to banks."

The preemption issue "is not going away," he said.

Rep. Frank said he is still weighing how best to use state supervisors and attorneys general to enforce rules and laws against unfair and deceptive practices.

"The goal here is to come up with a rational and fair ... [set] of consumer protectionism," he said. "Our job is to come up with a better system than what we have now. There are other questions - questions about whether or not the states should be involved. The states have a good deal of expertise in regulation here."

The committee's ranking Republican, Rep. Spencer Bachus of Alabama, missed the hearing, but he supported regulatory change in a statement read at the hearing.

"Although our consumer protection system is robust, I believe there is room for improvement. …