May 24, 2011

When the Senate goes on recess at the end of this week, President Obama should appoint Elizabeth Warren to direct the Consumer Financial Protection Bureau (CFPB). By making a recess appointment, the president can name the best qualified leader to head the new agency, while demonstrating he’s willing to stand up to Republican obstruction and Wall Street pressure. He’ll earn plaudits not only from the base of the Democratic Party that adores Warren but also from independent voters, who will be thankful for an advocate for consumers willing to stand up to the Wall Street lobby.

Given the mandate of the CFPB — to police “unfair, deceptive or abusive practices” of the financial world — anyone with a whit of sense knows that Elizabeth Warren is the best person to head the new agency.

Warren earned just renown for her path-breaking work on the financial pressures on middle-class families, while helping to develop consumer finance law as a professor at Harvard Law School. As head of the oversight panel that Congress established to provide independent review of the bank bailout, she challenged the secretive practices of the Treasury Department and helped provide Congress and citizens with a better sense of the extraordinary measures being taken to bail out the big banks. This pleased neither Treasury Secretary Timothy Geithner nor Wall Street.

Warren originated the idea of a consumer financial protection agency. She likes to note that consumers get greater protection for their toasters than they do from the unscrupulous bank, credit card, car loan and payday lenders whose tricks can devastate their lives. Her inspired advocacy led the administration to include the CFPB in its financial reform legislation and helped galvanize the popular support that led to the agency’s creation over the fierce opposition of the Wall Street lobby.

When consumers mobilized to demand her nomination to head the new bureau, Obama ducked and instead named Warren a special assistant to the president to get the bureau started. (Consumer advocates say that the unrelenting opposition of Geithner and the powerful bank lobby weighed heavily in that decision.) But in starting up the agency, Warren has proved her administrative prowess and her political sophistication. She impressed the big bankers with her willingness to listen, and she enlisted increasing support among community bankers.

She proved a team player in the administration even while offering a strong and independent voice for consumers. She displayed creativity too often lacking in Washington, working to open the new agency to consumers on the Web and to create an interactive process to help ensure its responsiveness to citizens. Already, the CFPB is testing model simplified mortgage forms as part of its “Know Before You Owe” project.

Not surprisingly, the more effective that Warren has proven, the more intense the opposition of the banking lobby. As Warren made clear in a speech this February at the Consumers Union 75th anniversary celebration, the battle to establish a strong and independent CFPB is far from over

“David beat Goliath, but make no mistake: Goliath is not down for the count,” said Warren. “Many of those who have opposed the CFPB are still trying to chip away at its independence by subjecting it entirely to congressional appropriations without any dedicated funding from the Federal Reserve.”

With few exceptions, Republicans opposed the new bureau from the start. They voted en masse against financial reform, with their congressional leaders trolling Wall Street for donations, presenting themselves as the banks’ defenders. In case anyone missed the message, when Spencer Bachus (R-Ala) took over the chair of the House Financial Services Committee, he announced that “in my view, Washington and regulators are there to serve the banks.”

So it’s no surprise that after the 2010 elections, congressional Republicans worked to weaken the bureau, seeking to limit its authority, to replace the director with a board, and to limit its staff, budget and powers. The reality is that the bureau is one of the most constrained regulatory agencies in the government, with its major rulemaking subject to review and approval by a council of regulators.

Increasingly, however, Republicans began to worry that Warren was too effective a spokeswoman. In nomination hearings, she would most likely garner more support for an independent agency. So 44 Republican senators dispatched a letter to Obama stating that they would block by filibuster any appointee to head the CFPB unless the law was changed and the bureau weakened.

This both forces and frees the president’s hand. By July 21, a director needs to be in position or the agency forfeits powers over non-bank financial institutions until one is in place. Purblind Republican obstruction liberates the president to do the right thing. Given the GOP’s threat, no nominee for the CFPB can be confirmed by the time the bureau can begin instituting rules. It would be a true disservice to Americans — and a craven cave-in to the bank lobby — to allow this to happen. Obama can either make a recess appointment — or be trapped in an endless no-win negotiation with those who have opposed the bureau from the start.