New consumer agency under fire from GOP, banks
Tuesday, March 15, 2011; 9:26 PM
WASHINGTON -- Four months before formally opening its doors, the new federal watchdog for policing mortgages, credit cards and other financial products is under attack from Republicans and banks.
Elizabeth Warren, the Harvard law professor who championed the Consumer Financial Protection Bureau and is now in charge of setting it up, faces the hostile fire directly on Wednesday. Republicans running the House Financial Services Committee will press her to answer their concerns - shared by banks and other business interests - that the agency and its director will have unfettered power over financial products used by millions of people and might abuse it.
"You have no guarantee what kind of hobby horses that person may ride, how out of control they might be," said Wayne Abernathy, an executive vice president of the American Bankers Association.
President Barack Obama has yet to nominate a director for the agency. Warren would have difficulty winning Senate confirmation because of Republican opposition. However, Obama could bypass that by using a recess appointment when Congress isn't in session to give her the job through 2012.
Echoing criticism from their business allies, GOP lawmakers want the new agency's budget placed under Congress' control so lawmakers could threaten its financing if its actions displease them. Its money now comes from the self-financing Federal Reserve, which Congress plays no role in financing.
Republicans also want to dilute the bureau's power by moving decision-making authority from a single director to a bipartisan, multi-member commission. Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, was was preparing to introduce a bill with Rep. Shelley Moore Capito, R-W.Va., that would replace the director with a five-person commission with members from both political parties, according to a document obtained by The Associated Press.
In testimony prepared for her committee appearance, Warren is defending the bureau.
"If Congress is unhappy with a rule, it can overturn that rule," she said. She also said the courts could block the agency's actions, and noted that the bureau is required to report frequently to Congress.
"In brief, there will be more oversight and accountability of the CFPB than of any other federal banking regulator," she said, using the bureau's acronym.
Democrats and their allies say they purposely gave the bureau clout and independence. Its creation was a marquee achievement of last year's financial markets overhaul law, which Obama and Democrats in Congress enacted last summer over GOP opposition.
The law "deliberately created an agency that was less likely to be manipulated by special interests," said Travis B. Plunkett, legislative director of the Consumer Federation of America. "That's the whole point."
The agency formally begins its work July 21 and cannot issue regulations until then. Many Democrats, consumer groups and others who support it blame the 2008 financial crisis on insufficient government regulation of banks and non-bank financial firms like mortgage lenders and credit bureaus.
"The economy collapsed because we didn't have any cops on the financial beat," said Edmund Mierzwinski, a program director for the consumer group U.S. PIRG. "Now they're trying to knee-cap the new cops before they even get started."
Obama appointed Warren, 61, an assertive consumer advocate, to oversee the agency's creation last September. She has spent the time since structuring the bureau, hiring veteran regulators and courting bankers, business executives and members of Congress.
"Everyone seems to report back the same thing - she's a very engaging and engaged person," said Jess Sharp, executive director of the U.S. Chamber of Commerce's Center for Capital Markets.
Even so, the chamber has been a leader in efforts to force changes in the bureau, arguing that it isn't accountable enough and might issue regulations that would hinder consumer and business access to credit.
Republicans and business allies also complain the new financial overhaul law is too vague and open to interpretation regarding the power it gives the bureau to protect consumers against "unfair, deceptive, or abusive acts and practices."
These provisions make the bureau "perhaps the single most powerful agency ever created by an act of Congress," Bachus, said last week.
"It's a phony argument," Rep. Barney Frank, the Massachusetts Democrat who co-authored the law, said Tuesday. "They don't like an independent consumer agency."
The GOP demands for changing the eight-month-old law have little chance of enactment with Obama in the White House and Democrats controlling the Senate.
Warren herself has come under attack from Republicans who say that she has overreached. They have especially bridled at reports that she has been an advisor to federal agencies and state attorneys general trying to force big U.S. banks to change the way they modify mortgages and handle foreclosures.
Last week, Sen. Richard Shelby of Alabama, top Republican on the Senate Banking Committee, called the legal effort "nothing less than a regulatory shakedown" by the bureau and other federal agencies.
Without mentioning Warren by name, five top House Republicans wrote to Treasury Secretary Timothy Geithner last week asking whether officials from the consumer bureau were involved in the effort, and under "what specific legal authority."
Geithner wrote back Tuesday, saying the bureau would not formally participate in any settlement with mortgage servicers but would advise agencies on how to design mortgage servicing standards.