The New Republic’s Noam Scheiber noted last week that the Senate Banking Committee’s ranking member, Sen. Richard Shelby (R-AL), was floating a compromise regarding an independent Consumer Financial Protection Agency (CFPA), which is one of the major sticking points in the financial regulatory reform effort. The Washington Post added today that Shelby’s proposal “includes limits on the consumer agency’s authority, including a commission of regulators that could serve as a check on rules put forth by the agency.”
Obviously the details here matter a lot, but on the surface, this is a reversal for Shelby, who has said that creating an independent consumer protection agency would be “folly and dangerous” and lead to a “nanny state.” In fact, it was Shelby’s stark opposition to a CFPA that led Dodd to end negotiations with him in the first place.
Just last month, Shelby appeared before the American Bankers Association and said that “safety and soundness [of banks] trumps everything. It trumps the consumer finance whatever.” So for the moment, I am skeptical that Shelby really favors a consumer agency with enough teeth to make it truly independent and effective. The fact that he wants to give a commission of regulators veto authority seems to confirm this, particularly since the regulatory reform legislation that passed out of the Banking Committee already gives the proposed Financial Stability Oversight Council (FSOC) the ability to overrule the consumer agency with a two-thirds vote.
It’s also interesting that, at least so far as it’s been reported so far, Shelby’s proposal seems to forego placing the new consumer division inside of the Federal Reserve, which was a compromise Senate Banking Committee Chairman Chris Dodd (D-CT) made in order to try and garner some conservative support for his legislation. So Shelby may be trying to tap into some of the anti-Fed fervor out there by proposing an agency outside of the Fed, but still one that is toothless and has limited reach.
As the Atlantic’s Derek Thompson pointed out, Shelby’s move raises two questions: “First, will Dodd agree to a CFPA that fudges the meaning of the word independent and essentially recasts Shelby’s previous counter-offers to give the CFPA glorified recommendation status? Second, will the White House — which has gone from lukewarm to crusading on the consumer protection issue — respond to Shelby’s offer with clear approval or disapproval?”
Dodd’s Consumer Protection Bureau represents the bare minimum in terms of independence that an effective regulator needs (which is why it earned the cautious endorsement of consumer advocate Elizabeth Warren). Any more infringements on that independence and we’ll be right back with the status quo: consumers relegated to secondary status, behind the bottom lines of financial firms. I hope Dodd fights the urge to accept Shelby’s offer in the name of bipartisanship if it weakens Dodd’s proposal even more and leads to the GOP demanding concessions on other parts of the bill.