This last week, President Bush made two new appointments to the FED's board of governors. One of them, Larry Allan Klane is from Capital One; one of the nation’s largest predatory lenders. The other, Elizabeth A. Duke is the former chairman of the American Bankers Association (ABA) and currently the COO of TowneBank.
These two appointments are bad news for consumers and very good news for big banks. To understand why, you may need a little background on the FED.
The FED was formed in response to bank panics that occurred in 1873, 1893 and 1907. President Woodrow Wilson helped to push the legislation through in 1913 to help stabilize monetary markets in the United State. At the time of the Great Depression the FED didn't help matters much, even though it probably could have. Fortunately, much was learned from that experience.
Since the Depression, the FED has done a fairly good job managing the economy. The organization has prevented run-away inflation, and has overseen the largest economic growth of any nation in the history of the world. In short, the overall record for the FED is admirable.
The way that the FED is setup, the President appoints members to the Board of Governors and the Senate then holds hearings to approve or reject the President’s choices. In the past, most of the appointments made by Presidents were practicing Economists. People who were trained in places like Harvard and Yale. People who love economics but who have little if anything to do with the banking industry itself. In fact, the current members of the FED board include four Ph.Ds in macroeconomics and one retired investment banker.
One of the new appointments, Larry Allan Klane - Harvard educated, but not in economics - is the 46 year old president of Capital One Global Financial Services. Among other things, his division is responsible for Capital One’s home loans and revolving charge accounts. You’ve probably seen the advertisements for their charge accounts. They feature Vikings and the phrase, "What’s in your wallet?"
Capital One has been sued by both West Virginia and Minnesota over their advertising. In March of 2005, the Associated Press said of Minnesota’s law suit, "Capital One's troubling practices were reflected most recently in Minnesota Attorney General Mike Hatch's lawsuit against the company. In the suit, filed in December, Hatch said Capital One's ads indicate that interest rates on its 'No Hassle' credit cards would remain at 4.99 percent. However, he says many consumers wind up paying higher rates, and those who miss payments or exceed credit limits could see rates in excess of 25 percent. Capital One said it continues to work with Hatch's office."
And according to a report filed by Inner City Press, the West Virginia Attorney General’s office has expressed "shock" at Klane’s appointment. ACCESS did call the Attorney Generals’ office for comments but has not received any information from them directly at the time of this writing.
The reason that Klane’s appointment is not good for consumers is that the FED has been heavily criticized for not doing a better job of regulating the home mortgage market. Specifically, a growing chorus of consumer advocates and members of Congress are asking why the FED hasn’t done more to stop lenders from steering consumers into risky mortgages. If Klane is actually approved by the Senate, his position on the FED’s board of governors could be compared to allowing a fox to watch the hen house because his organization at Captial One is involved in preditory lending.
The appointment of Elizabeth Duke is no better than Klane’s. While Duke was chairman of the ABA, she testified before Congress seeking fewer government banking regulations. At the same time, she actively opposed any attempt by Congress to allow more consumer-friendly Credit Unions to expand the communities that they serve.
It should also be noted that the ABA has actively fought state regulators on issues ranging from banking regulations to privacy laws. The ABA sued the State of California over privacy regulations that would have prevented banks from sharing consumer data with their affiliate companies. The ABA won that suit, and proved that consumer issues were of no concern to its members.
ACCESS is urging the Senate to reject both of these candidates for the FED. We are also urging our members and readers to call their US Senators and tell them that they oppose both of these appointments.
ACCESS is very concerned that approval of either of these nominees could lead to consumer abuse; specifically in areas involved with home mortgages, credit cards and in matters of financial privacy.
Politics & Politicians 
