The battle over whether to make a new Consumer Financial Protection Agency an independent agency or part of the Federal Reserve was won by the those who wanted it inside the central bank, which is being called a big win for banking lobbyists and a loss for consumers.

As Bloomberg News reports:

March 3 (Bloomberg) — For consumer advocates, housing a new agency to protect Americans from financial-product abuse within the Federal Reserve would be a defeat after lobbying for an independent body. For banks, it would represent a victory.

Barney Frank, Chairman of the House Financial Services Committee, called a Senate plan to house the proposed Consumer Financial Protection Agency at the Fed "a joke." Shielding consumers from harmful financial products is "the most conspicuous failure by the Fed," Frank said in an interview yesterday.

Banks say placing the agency with the Fed alleviates their concern that an independent entity would ignore the health of the financial system. Consumer advocates say it's a mistake because the Fed didn't succeed in curbing abuses during the subprime lending boom that contributed to the worst financial crisis since the Great Depression.

"We have all sorts of individual agencies that protect Americans, and none of them is subservient to the regulator that is in charge of looking out for the industry," said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. "This agency has to be independent so that it can fix the problems the banking regulators failed to fix."

It shouldn't surprise that the financial-services industry has won the day so far on this issue. According to the Center for Responsive Politics, financial services, including insurance and real estate, gave $477 billion in campaign contributions in 2008.

 

By comparison, the health industry gave $167 million and energy companies and officials gave $77 million.

Up against that, small wonder that consumer advocates failed to get what they wanted, that is, an independent agency.

Given how things have turned out, perhaps the new agency should be called the Financial Industry Protection Agency.