Fed flexes muscles at banks deceiving consumers

03.23.09
By Nicholas Storie

Do you ever wonder who is looking out for your best interest at banks offering financial products like mortgages, auto loans and other types of personal financing?

Regular examinations of banks helps ensure consumers aren't victims of mortgage fraud and other abusive lending practices, according to the Federal Reserve.

In testimony to the House of Representatives committee on financial services, Federal Reserve governor Elizabeth A. Duke reminded legislators of the steps being taken by the U.S. central bank to monitor consumer protection practices at financial institutions.

The Federal Reserve conducts regular examination of nearly 875 banks to evaluate compliance with consumer protection laws and fair lending laws - hoping to prevent these institutions from misrepresenting financial services and products to consumers, said Duke.

After a bank examination, the Federal Reserve prepares detailed reports on the institution's compliance with consumer protections laws and suggests actions to better serve individuals seeking financing solutions at the bank.

Duke said that if banks fail to comply, they will be held accountable. Some consumers who may have felt duped by confusing interest rates on mortgages or other personal loans might be anxious to see those banks change their practices.

"Banks with a poor record of compliance are examined more frequently than those with favorable records. When necessary to obtain compliance with consumer protection laws, we can, and do, use our enforcement tools, ranging from nonpublic actions to public cease and desist orders," said Duke.

More recently, the Federal Reserve, the Office of Thrift Supervision, the Federal Trade Commission and a number of state authorities initiated reviews of a handful of subprime mortgage lender operations as a new way to help protect consumers.

Based on findings from these first reviews, the Federal Reserve and other government agencies will determine the best way to supervise the practices at banks and independent brokers making subprime mortgage loans in the future.

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Fed bank examinations monitor consumer protection practices