WASHINGTON -- Reflecting concerns that government settlements with big banks haven't been tough enough, two Democratic lawmakers want the Federal Reserve board to approve all major enforcement actions.
Sen. Elizabeth Warren of Massachusetts and Rep. Elijah Cummings of Maryland have written to new Fed Chairwoman Janet L. Yellen urging her to "make it a top priority" to stop delegating enforcement responsibility to the central bank's staff.
"While the board votes on every important decision the Fed makes on monetary policy, the board rarely votes on the Fed's important supervisory and enforcement policy decisions," the lawmakers wrote in a letter sent Tuesday.
Warren and Cummings said they were particularly concerned that "the board did not vote on one of the largest and most significant enforcement actions in the Fed's history" -- a $9.3-billion consent order last year with 13 mortgage servicers.
The order, which also involved the Office of the Comptroller of the Currency, settled allegations the firms mishandled foreclosures. The settlement replaced a costly and time-consuming process in which the Fed and OCC required the servicers to hire consultants to audit foreclosures to identify wrongdoing.
The settlement affected more than 4 million troubled borrowers.
Warren and Cummings, along with other lawmakers and public interest groups, have raised concerns about the deal. Those included the ability of banks to obtain large credits toward the settlement amount for modest reductions of homeowner loan balances.
The lawmakers want the Fed's seven-member Board of Governors to take formal votes on settlements of more than $1 million or that involve removing a bank officer or installing new management.
The Fed has received the letter and plans to respond, said spokeswoman Barbara Hagenbaugh. Warren, a member of the Senate Banking Committee, is likely to press Yellen on the issue when she testifies before the panel Thursday.
During the last 10 years, the Fed's Board of Governors only voted on 11 of the central bank's nearly 1,000 formal public enforcement actions, Fed officials have said.
All the others were approved by the Fed's general counsel or other staff under power delegated to them by the board.
In a December letter to Warren and Cummings, former Fed Chairman Ben S. Bernanke said staff consults with board members about significant enforcement actions. Those consultations "guide the staff's decision," Bernanke wrote in response to questions from the lawmakers about the Fed's procedures.
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