The Federal Reserve Board has finally released its proposals for reforming the Truth in Lending Act (TILA). It comes right in the middle of a debate over whether a single consumer protection agency should be created to take over all consumer protection functions, including the administration of TILA.
Since the Fed has already indicated its strong opposition to the single-agency idea, it is tempting to view the TILA proposals as an attempt to protect its turf by polishing its consumer protection credentials. But that would be wrong, because the single-agency idea surfaced only this year, whereas the board’s TILA proposals have been in the works since 2004.
Whether or not the Fed ought to be in the consumer protection business ought to be based on the record of its performance over the last 30 years in administering TILA.
In my opinion, it has done a miserable job, not because it has not had the capacity — among the federal agencies, it usually attracts the best and the brightest — but because it has not had the will.
The Federal Reserve’s major priority has been monetary policy, and its second priority has been the safety and soundness of the banking system. Consumer protection has been a poor third, with the lowest claim to the board’s attention.
Those priorities are not going to change. Indeed, with the Fed assuming more responsibility for the stability of the nonbank financial sector, consumer protection is likely to have an even lower priority in the future.
The new proposals for reforming TILA provide striking evidence of the low priority the Fed has given to consumer protection. Many of the proposals are excellent and badly needed — but as long as 30 years late!
Perhaps the most striking example is the proposal to amend the definition of the annual percentage rate, or APR, which has been the centerpiece of TILA. The APR is supposed to be a single comprehensive measure of the cost of a loan, but in fact it has never been comprehensive because the original TILA legislation excluded some charges.
Title insurance required by the lender, for example, has never been included in the APR. …CONTINUED