Fed blamed for sub-prime lending

The move comes amid the US sub-prime mortgage crisis - prompted by people defaulting on loans.

Aggressive advertising of low starter rate mortgages has been partly blamed for the rise in defaults.

The move is being seen as a rebuff to the US Federal Reserve, which has had the lead role in banking regulation.

'Vacuum'

The bill, approved by the House Financial Service Committee, puts more power into the hands of the national bank regulator, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), which oversees many state banks.

Under the new law, the two organisations would be able to write regulations to stamp out deceptive advertising.

The way in which low introductory rates for mortgages were advertised has come under focus as the sub-prime crisis has unfolded. Many of the loans reverted to higher rates after an introductory periods, putting low-income borrowers into difficulty.

Current laws allow the US Federal Reserve and the Federal Home Loan Bank Board to decide if a firm was guilty of "unscrupulous" practices in selling financial products.

But the committee's adoption of the bill, which may be considered by the full House of Representatives as soon as October, comes as many consider that the existing powers are insufficient.

Committee chairman, Barney Frank, said that there was currently a "vacuum" in the role of the OCC and FDIC.

He also criticised former Fed boss Alan Greenspan for not being willing to slow the growth of sub-prime lending.

Mr Greenspan has said this week that he "didn't get" the potential for the sub-prime loan industry to backfire.