Since the debate over financial regulatory reform began, the Obama administration has been pushing for an independent Consumer Financial Protection Agency (CFPA), which would be charged with protecting consumers from deceptive and unfair financial products. In early January, when Senate Banking Chairman Chris Dodd (D-CT), who is leading negotiations on financial reform in the upper chamber, seemed to be leaning towards ditching the CFPA, one White House official reportedly told Dodd that an independent agency was “nonnegotiable.”
But according to the Washington Post, “the Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency as a central element” of regulatory reform:
In hopes of quick congressional approval of a reform bill, White House officials are opening the door to compromise with lawmakers concerned about creating a new bureaucracy, according to congressional and some administration sources. President Obama’s economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency.
“In either case, they are insisting on a regulator with political autonomy and real teeth so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products,” the Post added.
This seems an odd moment for the administration to signal its willingness to drop the agency, considering that just two days ago, Assistant Treasury Secretary Michael Barr said in a speech that “bringing regulation of consumer financial markets regulation out from under prudential regulators is the most effective way to provide the accountability and effectiveness the system is lacking.” “Real accountability requires a grant of the authority, tools, and resources needed to achieve the mandate. And accountability must be supported by real independence to make and carry out decisions,” he said.
Placing the consumer protection office within Treasury could pose some real problems, even if it has an independently appointed director. Would it be on equal footing with the bank regulators? Would it have independent rule-writing authority? How about enforcement abilities? Does the Treasury Secretary have the ability to overrule the office’s decisions? Unless the agency can independently act to rein in the banks, the consumer protection status quo doesn’t change.
The administration may be trying to float ideas that will get Sen. Bob Corker (R-TN), who has been working with Dodd, on board, since the CFPA has been Republicans’ main point of objection. But Corker and Dodd are reportedly going in a completely new direction, proposing to create a new bank super-regulator, with one division for bank regulation and another for consumer protection. At least until the contours of this deal are known, the administration should keep pressing for an independent CFPA, instead of preemptively giving it away in exchange for nothing.
And at the end of the day, as Tim Fernholz wrote, compromising away vital parts of the legislation in order to secure Corker’s support means the reforms “won’t be worth the time it will take the Senate to pass them.” Dodd should get the best bill that he can onto the floor and dare Republicans (and conservative Democrats) to vote against it.