IN FOCUS: Fed View on Consumer Protection Gets Murky

By Sloan, Steven | American Banker, August 10, 2009 | Go to article overview

IN FOCUS: Fed View on Consumer Protection Gets Murky


Sloan, Steven, American Banker


Byline: Steven Sloan

WASHINGTON - Though the Federal Reserve Board is clearly opposed to handing off its consumer protection powers to a new agency, its proposed alternative has left many confused and others saying it would accomplish little.

In separate appearances before House panels last month, Fed Vice Chairman Donald Kohn and Elizabeth Duke, a governor, said Congress could explicitly mandate consumer protection as a core mission of the central bank instead of creating a new agency.

The comments were sufficiently vague so that, to some, it sounded as though the Fed was proposing to expand its dual mandate of promoting price stability and maximizing employment to include consumer protection - an idea many saw as unworkable.

"They already have a problem following the dual mandate because they tend to shift from one thing to the other," said Allan Meltzer, a professor at Carnegie Mellon University and a noted Fed historian. "You put a third thing in there, and they have another reason for not doing what they're supposed to do."

Many said that, adding to the dual mandate, which Congress enacted in 1978, makes no sense.

Full employment and price stability are "so important," said George Kaufman, a finance professor at Loyola University in Chicago. "They're overwhelmingly more important than consumer protection. A stable economy dominates everything."

Others said consumer protection would be a messy fit with the two other mandates. "It's the 'what does not belong in this picture' question, and you'd have to say the consumer piece," said Cornelius Hurley, a former Fed lawyer who now directs the Morin Center for Banking and Financial Law at the Boston University School of Law.

Some Fed supporters said that it could help, arguing that consumer protection gels with broader oversight of the economy.

"Good consumer protection can be consistent with economic stability and safety and soundness," a former Fed official said. But Joseph Mason, a finance professor at Louisiana State University, questioned the broader impact such a change would have on the conduct of monetary policy.

"Think for a moment of a world where interest rate policy doesn't work, the Fed wants to expand lending and can't figure out how," he said. "One policy tool becomes to promise or implement laxity to [give] lenders [an incentive] to expand credit."

Fed officials declined to discuss this on the record, but in private they say Kohn's and Duke's comments were misinterpreted. What the central bank is advocating, these sources said, is a simple reopening of the Federal Reserve Act to add language to the preamble requiring that the Fed protect consumers. The preamble now mandates that the Fed supervise banks and maintain an elastic currency.

In her testimony, Duke told lawmakers they "could formally codify consumer protection as a core mission or responsibility for the Federal Reserve, similar to monetary policy and banking supervision and regulation."

But observers are equally critical of adding consumer protection language to the Federal Reserve Act as an explicit duty. The theory is that such a change would signify the elevated importance of consumer protection at the Fed and ensure that future leaders of the central bank dedicate sufficient resources to the issue.

"Putting it as a core function is basically telling the Fed to spend more money on this and we won't mind if, at the end of the year, you send $14 billion instead of $15 billion" to the Treasury, said Robert Litan, a senior fellow at the Brookings Institution. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

IN FOCUS: Fed View on Consumer Protection Gets Murky
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.