Another Fed goal is to protect consumers in lending and deposit transactions.
Fed examiners specially trained in consumer compliance laws examine banks and thrifts with assets of $10 billion or less to be certain that consumer loan applications are judged on the basis of the consumer's ability to repay the loan and not on the consumer's race, gender, age, neighborhood of residence or other discriminatory practice. Fed examiners not only ensure that credit costs and interest rates are stated accurately, but they also make sure they are stated clearly. For example, borrowers must not only be told the interest rate, but they must also be told the annual percentage rate (APR) for a loan. For more information on the difference, click here.
In their Community Development departments, Federal Reserve Banks are also active in helping local institutions broaden access to loans by bringing together lenders, government agencies, nonprofit corporations and community development groups.
Other Fed responsibilities include examining mortgage lending companies that are subsidiaries of banks to be certain they are lending to people who can afford to pay back the loan and to be sure they are charging a reasonable interest rate. The Fed also regulates credit card companies in one area of business – debit cards. Consumers use debit cards to make purchases in lieu of using cash or checks; the purchase amount is deducted immediately from their bank account. Merchants accept debit cards but must pay a transaction fee to the issuing credit card companies for each debit card purchase. The Federal Reserve regulates the credit card companies to ensure that these companies do not charge merchants fees that are much higher than the costs of processing the merchants' debit card transactions.