Under a new policy, the Federal Reserve announced Tuesday that it will begin a consumer compliance supervision program that will perform checks on non-bank subsidiaries of bank holding companies, such as home-equity loan businesses. The regulatory actions are covered by existing consumer protection laws that the Federal Reserve has the authority to enforce.
The same oversight that the Federal Reserve uses on banks and bank holdings companies will now extend to businesses such as Wells Fargo Financial, the lending unit of Wells Fargo and CitiFinancial, a unit of Citigroup.
The new policy stems from a joint pilot program launched in 2007 by the Federal Reserve, the Federal Trade Commission (FTC) and the Office of Thrift Supervision (OTS). That program targeted consumer protection compliance reviews of select non-depository lenders that did substantial subprime mortgages business.
The Federal Reserve said the new compliance supervision program will begin immediately. However, officials did not say how many lenders would be covered. A letter did go out to bank holding companies requesting information for their applicable units and a review of that information is scheduled to start by next summer.
Complaints from consumers about transactions with non-bank businesses will also be investigated under the new policy, the Federal Reserve said.
The move comes as the Federal Reserve shifts toward a more aggressive approach for protecting consumers, using its lawfully given authority, which it had not really exercised in the past.
However, the policy is just an early step in the Federal Reserve’s goal to expand its banking regulatory power. The Obama administration has seen proposals for regulatory reform from the House Banking Committee and the Treasury Department.
The Banking Committee’s proposal aims to strip the Federal Reserve of most of its regulatory power, and the power of other agencies, in favor of a new agency devoted to consumer protection.
On the other hand, the Treasury Department’s proposal seeks to increase the Federal Reserves role in regulating the banking sector. However, that proposal has already run into some opposition in Congress.
