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Washington — Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke staked out opposing sides Friday in a turf war over who should protect Americans from shady mortgage lending, abusive credit card fees, payday loans and other high-cost or risky financial products.

The White House wants to create a new Consumer Financial Protection Agency to oversee a vast range of financial products, stripping the Federal Reserve and other banking regulators of their current authority for policing them.

"I think it’s very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do," Geithner told the House Financial Services Committee. He cited the collapse of the housing and credit markets because of subprime mortgages made to borrowers who didn’t understand and couldn’t afford them.

Bernanke, appearing before the same committee after Geithner, argued that the Fed should retain consumer protection powers regarding consumer products.
Bernanke said, Congress should be aware of "some of the benefits that would be lost through this change," including the Fed’s consolidated resources for also ensuring the safety and soundness of banks.

Geithner brushed aside the Fed chairman’s concerns as part of a typical Washington turf battle instant payday loan. "With great respect to the chairman and other supervisors who are reluctant to do this, they are doing what they should, which is defend the traditional prerogatives of their agencies," Geithner said. The House committee’s chairman, Rep. Barney Frank, D-Mass., has delayed a vote on the measure until after the August recess, but maintains he has the votes to pass it.

House Republicans have offered an alternative that would strip the Fed of its regulatory role and abolish the Office of the Comptroller of the Currency and the Office of Thrift Supervision. In their place would be a single regulator for depository institutions, which would include an office focused on consumer protections.

Unlike the administration’s plan, the GOP-envisioned regulator would have no authority over nonbank institutions, such as mortgage brokers.

Both Democrats and Republicans in Congress are leery of giving the Fed additional powers, blaming what they say was its lack of regulatory oversight of banks and risky mortgages for leading to the current financial crisis.

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