WASHINGTON - U.S. Senator Herb Kohl raised concerns about creating a separate Consumer Protection Agency and removing consumer protection responsibilities from existing bank regulators and other agencies at a Senate Banking Committee hearing today.  The Administration is proposing to remove most all consumer protection rules writing authority, enforcement and oversight from different agencies and consolidating the responsibility into one federal agency. In March, Senator Kohl raised the issue of consumer protection and how it relates to the safety and soundness of a financial institution.  In a written response to Senator Kohl, Federal Deposit Insurance Corporation (FDIC) Chairwoman Bair expressed her concern of creating a separate consumer protection agency and its negative impact it might have on both financial soundness of an institution and protecting consumers. 

Senator Kohl asked Secretary Geithner to explain the differences between the FDIC’s objection three months ago and the current proposal on the table today. Geithner indicated that the current framework has not worked and needs to be revised. He said that some agencies were more focused on safety and soundness than on consumer protections and this will be a more efficient way to address both. However, he did note that he is working with the other agencies to develop solutions in increase financial stability and consumer protections.

The Treasury Secretary acknowledged the FDIC Chairwoman’s concerns and indicated that the two departments are going to work together to ensure stability of financial institutions and increase consumer protections.

Kohl raised the concern about closing loopholes in the regulatory system, specifically transferring Industrial Loan Corporation (ILC) charters to bank holding charters and if the Treasury department has identified any unintended consequences, including limiting access to consumer credit.

Secretary Geithner stated that ILCs did not play a part in the current financial crisis but that the Treasury Department will work with Senator Kohl to come to a solution. He indicated that he did not want to leave any gaps in the system and that he intends to create a system that will easily adapt and be more flexible in the future.

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