Federal Reserve chairman Ben Bernanke told lawmakers Friday the central bank should remain in charge of consumer financial protection, opposing an administration proposal for a new regulator.
Bernanke's comments clashed with those of Treasury Secretary Timothy Geithner, who called for support of a new "Consumer Financial Protection Agency" proposed by the administration of President Barack Obama.
Bernanke argued in a hearing of the House Financial Services Committee that it was "important to point out some of the benefits that would be lost through this change."
He said the Fed is the appropriate regulator and must look at issues of consumer protection as well as systemic risk when supervising financial institutions.
"Both the substance of consumer protection rules and their enforcement are complementary to prudential supervision," he said.
"Poorly designed financial products and misaligned incentives can at once harm consumers and undermine financial institutions."
He said the Federal Reserve "has adopted strong consumer protection measures in the mortgage and credit card areas" but is also careful about "tailoring rules that prevent abuses while not impeding the availability of sensible extensions of credit."
Geithner insisted in the same hearing however that "the case for the Consumer Financial Protection Agency is clear."
He said that many non-bank financial firms such as mortgage brokers and large independent mortgage companies "currently operate under no federal supervision."
Thus, the creation of a new consumer protection agency "would fix this problem and ensure a level playing field by extending the reach of federal oversight to all financial firms, no matter whether they are banks or non-banks."
He also said that while bank regulators' "primary focus is the safety and soundness of the institutions" rather than the effect on consumers.
"That is why the CFPA would have as its sole mission examining how a product or practice affects consumers," Geithner told the panel.