President Barack Obama finally made official what everyone in Washington had assumed for months: Elizabeth Warren, the Harvard law professor who first had the idea for a consumer financial protection agency, will not get to oversee her creation. Instead, the president has nominated Richard Cordray, the former Ohio attorney general who’s now running enforcement at the Consumer Financial Protection Bureau, to fill the job.
Warren, a major irritant to the big banks, was never going to get the 60 Senate votes needed for confirmation. Cordray, a smart, aggressive prosecutor, is unlikely to fare much better. By going with Cordray to run the bureau -- created to oversee the sale of consumer financial products, from the fine print in mortgages and credit cards to the interest rates charged by payday lenders to the overdraft fees on checking accounts -- Obama seems prepared to have a gloves-off fight with the financial industry and its Senate allies.
This battle is likely to be waged over obscure accountability and structural issues. In a May 5 letter to Obama, 44 Republicans pledged not to confirm any nominee unless the bureau director is replaced by a board of directors, the agency is subject to the congressional appropriations process, and new checks and balances are in place to prevent excessive bank regulation. The president should resist all three demands.
The Republican senators would do away with the idea of an agency director and recast the consumer bureau in the mold of the Securities and Exchange Commission, with five commissioners split between Democrats and Republicans (and the party controlling the White House naming the chairman, and thus exercising control, in theory).
This would be a mistake. The consumer bureau, which inherits supervision duties from seven federal agencies, was designed to move quickly (like the Federal Deposit Insurance Corp.) and not ploddingly (like the SEC, where three commissioners must pre-approve nearly everything the agency does).
Subjecting the bureau to the congressional appropriations process would also be a mistake. The bureau was meant to be insulated from the partisan funding fights that have hamstrung the SEC, the Commodity Futures Trading Commission and other regulators. Financing the new bureau through the Federal Reserve -- which in turn is funded through its open-market operations and by the institutions it supervises -- is the surest way to stop lawmakers from starving the bureau of resources.
No question, the consumer bureau should not be able to issue new rules willy-nilly. Concerns in this realm are most always justified. But the Dodd-Frank law has safeguards that prevent the bureau from harming the overall economy or threatening the safety of the banking system. For example, anyone on the so-called council of regulators -- it includes the heads of the FDIC, Federal Reserve and SEC, along with the comptroller of the currency and six others -- may temporarily stop any bureau rule simply by asking the Treasury secretary, who chairs the council, to do so.
In addition, the council can permanently halt an objectionable rule with a two-thirds vote. And if another regulator objects in writing to a bureau proposal, the CFPB must publicly explain why it’s going ahead anyway. The act of having to justify itself will be a powerful deterrent against blunderbuss moves.
The consumer bureau, to be effective, needs all the agility and muscle that the Dodd-Frank law meant it to have. Although it’s bigger than any one person, the bureau by law must have a confirmed director to issue new rules and oversee non-bank firms such as payday lenders. The Senate should move ahead on the Cordray nomination with all speed. After all, it’s in the industry’s best interest if consumers can understand what they’re buying.
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