Turf protection has been a major problem in adopting consumer protection rules, which require input from other regulators, said Travis Plunkett, legislative director for the Consumer Federation of America.
"It's like a multi-armed octopus that's very hard to get a handle on," he said of the existing structure. "All the agencies are interested in protecting their jurisdiction over their slice of the financial marketplace, so typically there's a great deal of resistance to imposing uniform restrictions that affect the whole marketplace."
The Fed is fighting back.
Bernanke, who took over in 2006, has admitted the central bank's failure to protect consumers under Greenspan. But Bernanke said he had made consumer protection a priority, noting not only the mortgage rules that finally came out on his watch but also new rules for credit cards and recent proposed changes for mortgage and home-equity loan disclosures.
"We were not quick enough and we were not aggressive enough to address consumer issues earlier in this decade," he told lawmakers. "I think the Federal Reserve in the last three years or so has demonstrated that it can be very effective."
Like the Fed, other agencies are scrambling to highlight their commitment to consumer protection.
Just days after the Obama administration proposed the new agency, the National Credit Union Administration proposed creating a consumer protection office in its 2010 budget. And FDIC Chairwoman Sheila Bair appointed a senior advisor for consumer policy, a new position.
But supporters of the Obama administration's proposal worry that when a new Fed chairman takes over or the financial crisis abates, consumer protection could be pushed onto the back burner again unless those powers are given to a new agency with that sole function.
"Clearly all of the agencies have a core mission that simply reduces consumer protection to the margins," said Rep. Bill Delahunt (D-Mass.).
The prime example of that is the Fed's failure to act on subprime mortgages, said supporters of a new agency.
"There were definitely people at the Fed then who understood the problem and wanted to fix it," said Kurt Eggert, who served on the Fed's Consumer Advisory Council from 2004 to 2007. "They can advise, but the policy comes from the chair."
He said Greenspan, who headed the central bank from 1987 to 2006, was the main reason the agency didn't act.
"The problems in the subprime world were readily apparent well before the crash and during his reign as chair," said Eggert, a law professor at Chapman University in Orange, who has studied the mortgage industry. "It wasn't the lack of information out there. Some of it was not treating it seriously enough and some of it was not viewing the Fed's job as consumer protection."
Greenspan said during a contentious congressional hearing last fall that former Fed Gov. Edward M. Gramlich had warned of the risks of predatory lending in 2000. Greenspan said he didn't think regulations would be successful and opted to leave the problem to free-market forces.
He conceded he was later "distressed" to learn that his long-standing belief in the power of competitive markets had failed when it came to subprime mortgages.
The budget for the Fed's Division of Consumer and Community Affairs, which handles rule-writing, has increased from $25 million in 2005 to $41.8 million this year, and average staffing has risen from 84 employees to 116.
Fed officials said that effort was in addition to consumer protection services provided by economists and others at the agency, mainly bank examiners who integrate consumer protection standards in their routine bank compliance reviews.
When the Fed finally rolled out the mortgage rules last summer, as well as new limits on credit card interest rates and fees, Congress wasn't mollified. Unhappy that the Fed gave banks until July 2010 to comply with new credit card rules, lawmakers this year accelerated the effective date by five months.
"It is true that things have improved, but the Fed's track record over the last 10 to 15 years has been overall dismal in addressing consumer protection concerns in the financial services marketplace," Plunkett said.
"There's no evidence this is a change that will last more than a year or two, until Congress is paying attention to something else."