Shelby open to having consumer unit in Fed

WASHINGTON, March 3 (Reuters) - Key Senate Republican Richard Shelby is open to placing a consumer financial protection division within the Federal Reserve, people familiar with the senator's thinking said on Wednesday.

Shelby's willingness to give the Fed some oversight of consumer protection signals a shift in his view and could be a breakthrough for Democratic Senator Christopher Dodd's financial reform bill.

The sources said Shelby is proposing the idea along with less independence for the consumer division. Dodd is expected to call for making the consumer regulator a part of the Fed, instead of making it an independent, stand-alone agency as proposed by the White House.

Dodd, the chairman of the Senate Banking Committee, has been working on a bipartisan bill with junior Republican Senator Bob Corker. Having Shelby on his side would help Dodd garner more Republican support.

One source said Dodd was expected to counter Shelby's offer, but it was not clear how.

The Fed has been criticized for lax regulation, failing to prevent the economic crisis and continually intervening to rescue troubled financial firms. Shelby has been one of the Fed's harshest critics.

The idea of placing the consumer watchdog in the Fed still faces stiff opposition from some senior Democrats. Calls to a Shelby spokesman were not immediately returned. (Reporting by Rachelle Younglai, Karey Wutkowski and Kevin Drawbaugh; Editing by Leslie Adler)