Years too late to stop Household International, and six years too late to monitor HSBC Finance, the Federal Reserve announced Tuesday that it will extend its regulatory umbrella. HSBC’s HFC and Beneficial Finance were not mentioned by name, presumably because they are in run-off mode.
Under the new policy, the Fed will extend the same oversight to other businesses owned by those holding companies, such as units that make home-equity loans. The policy places subprime lenders such as CitiFinancial, an arm of Citigroup, and Wells Fargo Financial, an arm of Wells Fargo, under Fed oversight for the first time. The same laws protect all borrowers, but until now, no federal agency watched to make sure non-bank subsidiaries followed the law.
Household International and Ameriquest were both charged with predatory lending. The actions were brought by the states, not the Fed.
The Fed has lately begun to assert itself, for example imposing new restrictions on mortgage and credit card lenders. Why do you suppose the Fed is doing that now? We heard no apologies from the Fed for not doing it before.
The answer is simple, self serving, and somewhat disappointing:
the Fed also is struggling to defeat an Obama administration proposal to strip its responsibilities, along with those of other banking regulators, in favor of a new agency solely devoted to consumer protection. Critics argue that the Fed’s newfound fervor will fade if it succeeds in keeping its powers.
Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, and Sen. Christopher J. Dodd (D-Conn.), the chairman of the Senate Banking Committee, both have said that they support creation of the new agency, but some details face opposition from members of both parties. Frank’s committee plans to complete work on the legislation in October.
Had the Fed monitored HFC, Beneficial Finance, Citifinancial, Wells Fargo Finance, and others long before now the agency would not find itself in survival mode today.
The Fed should sit down with the National Association of Attorneys General, where the agency can gather enough information to stay busy for years.
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