Proposed agency for consumer protection faces fierce debate

Similarly, the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC are chiefly responsible for making sure banks don't fail, not for protecting consumers. Suppose a bank kept changing the due date on its credit cards, causing some card holders to get confused, miss payments and get dinged with late fees. To a regulator responsible for a bank's health, Treasury's Barr says, "moving the due date around creates revenue for the bank — and that's a good thing."

Critics say it's a mistake to separate consumer regulation from safety-and-soundness regulation. If the new agency banned prepayment penalties on some loans, for example, lenders' financial stability would be more vulnerable to interest rate changes that encouraged consumers to pay off loans early, warns Peter Wallison at the conservative American Enterprise Institute.

•Banks can change regulators by switching charters. That can lead to a "race to the bottom" by regulators loosening rules to entice more banks to choose their jurisdiction.

Capital One Bank, based in McLean, Va., was fending off subpoenas by the West Virginia attorney general when it switched charters and became a national bank. Several months later, a judge ruled that the attorney general could not enforce subpoenas against a national bank, killing an investigation into whether Capital One was failing to give consumers credit they'd been promised, gouging them with high interest rates and fees, and saddling them with a "payment protection plan" that offered no real benefits. "It's the most galling case I've seen in 30 years in the law," says Charli Fulton, senior assistant West Virginia attorney general.

In an e-mail response to questions from USA TODAY, Capital One spokeswoman Tatiana Stead says the charter change had nothing to do with the West Virginia investigation.

After two acquisitions, Capital One's operations fell under four different charters and four regulators. It converted to a national bank "to give us operational efficiency and supervisory consistency," she said. "Capital One believes it has acted properly with respect to the marketing and servicing of its products and services and in providing appropriate disclosures to our customers."

Industry rebuttal

Talbott of the Financial Services Roundtable dismisses concerns over charter changes as "a red herring. Can you show me a bank that has changed its charter more than once in five or 10 years?" The Government Accountability Office — Congress' investigative arm — found that less than 2% of the nation's banks changed between state and federal charters from 1990 to 2004.

The Federal Reserve, FDIC and the Comptroller of the Currency have joined the financial services industry to oppose the consumer agency. Fed Chairman Ben Bernanke told the Senate Banking Committee recently the Fed's "expertise in financial markets, payment systems and supervision positions us well to protect the interests of consumers."

But "no one cares" what the bank regulators think, says House Financial Services Committee Chairman Barney Frank, D-Mass., because they failed so badly in the run-up to the subprime disaster. Frank plans to begin serious work on the bill this month and to get it passed this year. "I am determined that it will pass," Frank says. "It's a test of my ability to provide leadership." The Senate Banking Committee plans to begin work on its version this month, too.

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