However, as it has been for weeks, the holdup in the negotiations remains the creation of an independent Consumer Financial Protection Agency to protect consumers from deceptive lending practices, which Republicans have called everything from “folly and dangerous” to a “non-starter.” Late Friday, Senate Banking Committee Chairman Chris Dodd (D-CT) circulated a proposal that would place a consumer protection division with rule-writing authority and independent funding inside of the Treasury Department. But even this watered-down proposal was not enough to satisfy Corker and Shelby:
[I]n a setback for Dodd, his offer has been rejected by the banking committee’s top Republican, Senator Richard Shelby, and fellow Republican Senator Bob Corker. The sources said Shelby and Corker objected to the rule-writing power Dodd proposed for the consumer division, but not necessarily to the idea of the division itself being located in the Treasury Department or another federal agency.
At this point, it seems that Corker and Shelby are simply digging for reasons to object to whatever Dodd suggests, since, as Bloomberg reported, Republican alternatives to Dodd’s proposal “give the consumer unit the power to write rules, including banning unfair or deceptive practices.” The difference is that the GOP wants to house the consumer unit within an already existing bank regulator, with Shelby favoring the FDIC and Corker preferring the Federal Reserve.
The insistence on placing the consumer division within a bank regulator fits with the Republican mantra regarding the CFPA, which is that consumer protection can’t be divorced from the “safety and soundness” of banks. But the Fed already had consumer protection abilities before the crisis, which it utterly failed to exercise. Placing a consumer protection unit there simply perpetuates the status quo, and seems to be at odds with Shelby’s contention that the Fed “should have a limited range of responsibilities and that its main focus should be on conducting monetary policy.” The whole point of creating an independent agency is to have at least one place where the main focus is consumers, rather than banks.
As Felix Salmon pointed out, Dodd’s compromise proposal was very weak, as “its rules could be vetoed by the Systemic Risk Council, it would essentially be barred from enforcing its own rules on small institutions, let alone examining those institutions, and it would have to talk to bank regulators before enforcing any rules on bigger banks.” Yet the GOP still found it unacceptable. So at what point does Dodd give up what’s looking more and more like a useless game and simply force the GOP to vote against a reform bill, in the wake of a financial crisis from which Main Street is still struggling to recover?