The CFPB was hailed by administration officials as a centerpiece of the sweeping financial overhaul passed by Congress last year — and the part that most directly affects voters. The agency would consolidate many of the consumer protection functions of seven government regulators, but its real muscle would be its ability to write and enforce new rules and examine financial firms beyond banks.
Among the firms at the top of that list are the mortgage originators that promulgated some of the shadiest loans of the subprime crisis. It also includes the payday lenders and check-cashers that have long been criticized for charging exorbitant fees. The goal was to create a level playing field for all types of financial products.
“It is designed to make sure that everybody follows the same set of rules, so that firms compete on price and quality, not on tricks and not on traps,” Obama said when the law was signed.
But the law prohibits the agency from using any new powers until Obama appoints a director, a provision that has ensnared the CFPB in a bruising political fracas. The White House has yet to nominate anyone and has remained mum on future plans. Republicans in the Senate, which must confirm the appointment, have threatened to block anyone from getting the job without significant changes to the bureau.
The stalemate has lasted so long that it would be virtually impossible for the Senate to vet any candidate before the agency opens for business July 21, even if a compromise could be reached. The White House could make a recess appointment during the Independence Day holiday, but Republicans have promised to keep the Senate in session. The CFPB has said it will be ready to start work on the launch date, even if it has no leader and sharply curtailed authority.
The battle over the CFPB has hit a nerve among the progressive voters that played a crucial role in Obama’s election. They have pushed him to appoint fiery Harvard law professor Elizabeth Warren — who is credited with the idea for the bureau — to lead the agency, though she has had a rocky relationship with the banking industry. Several other names have been floated as potential candidates, including one of Warren’s top deputies, Raj Date. But liberals have rejected any alternatives.
“It would send a signal that this president is unwilling to fight for what’s right,” said Adam Green, co-founder of the Progressive Change Campaign Committee.
Even many banks have become frustrated with the uncertainty surrounding the agency. At the annual Consumer Bankers Association conference here, several executives said they want Obama to name a candidate, even as they lobby to change the bureau to a five-member commission.
“It’s in our best interest to have somebody in that role,” said Shelaghmichael Brown, head of retail banking at BBVA Compass.
The industry also chafed at the prospect of payday lenders, check-cashers and other financial firms flying under the radar of the new agency unless a director is named, while banks will still be subject to the CFPB under existing regulations.
“Don’t put us in a sandbox unless we all have to play there,” CBA President Richard Hunt said.
There seem to be few options for the White House to get out of this logjam — and some political analysts suggest it may not want to.
Picking Warren for the post risks offending the banking industry just as Obama has begun repairing his relationship with Wall Street in preparation for his reelection campaign. Nominating someone else would incense his base, and Republicans have vowed to block the candidate anyway.
But an impasse allows Obama to take credit for creating the agency while blaming Republicans for stalling it, said Douglas Holtz-Eakin, president of the American Action Forum and economic adviser to Sen. John McCain (R-Ariz.) during his presidential campaign. At the same time, Republicans can tout their ability to stop what they have dubbed the “Obama overreach.”
That leaves the only downside the power of the agency itself.
“The political accomplishment was passing it and its existence,” Holtz-Eakin said. “Whether it’s up and running and staffed appropriately and is effective between now and November 2012 doesn’t matter very much.”