WASHINGTON -- U.S. lawmakers on Wednesday dismissed bank regulators' calls to preserve their consumer protection duties, saying their dismal track record reinforces the argument for a powerful new independent agency.
"It seems like a new interest for you," Barney Frank, chairman of the House Financial Services Committee, told the top bank regulators during a hearing on financial reform.
The agency heads defended their attempts to protect consumers from shoddy financial products, such as subprime mortgage loans, by saying the Federal Reserve's limited consumer protection rules hampered them.
"My examiners are only as good as the rules they have to enforce," said Sheila Bair, chairman of the Federal Deposit Insurance Corp.
Bair testified alongside the heads of the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
All three regulators said they did not support the Consumer Financial Protection Agency in the form the Obama administration proposes. The new agency would have the ability to write and enforce broad rules on financial products and services, such as home loans, credit cards, and student loans.
It would strip the regulators of their ability to examine banks for compliance with the consumer rules, and would reallocate staff from the bank regulators to the protection agency.
Bair and Currency Comptroller John Dugan said they thought a new agency should be created to protect consumers, but its responsibilities should be limited to rule writing and enforcing those rules only at non-banks.
"The very worst subprime lending was not happening in national banks," Dugan said, arguing that the so-called shadow banking sector of mortgage originators and other loan operations should be the focus of the new agency's enforcement regime.
Frank repeatedly challenged the officials who argued that they had tried to get more power to write rules that would protect bank customers from costly loans and credit cards with hidden fees.
"I do not recall either of you ever coming to me and saying you didn't have strong enough rules," Frank said.
The dismissal of the regulators' concerns could signal that Democrats will move forward with legislation to create the Consumer Financial Protection Agency, despite opposition from regulators, the bank industry and Republicans who say the watchdog could drive up costs and limit customer choices for financial products.
The move to create the agency gained momentum this week as Frank agreed to pare back the scope of the watchdog's authority, removing its ability to require firms to offer "plain vanilla" versions of financial products.
At a hearing earlier on Wednesday, Treasury Secretary Timothy Geithner argued forcefully for the creation of the protection agency while also signaling support for Frank's changes.
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