President Barack Obama has brought in new leadership to the consumer agency created after the 2008 financial industry meltdown, a move widely seen as an effort to remove a potential political obstacle: Elizabeth Warren.
But there is no assurance that Warren's designated replacement, former Ohio Attorney General Richard Cordray, will have an easier time in Congress.
"There is an army of lobbyists and lawyers right now working to water down the protections and the reforms that we passed,” Obama said Monday in nominating Cordray to head the new Consumer Financial Protection Bureau. “They've already spent tens of millions of dollars this year to try to weaken the laws that are designed to protect consumers. And they've got allies in Congress who are trying to undo the progress that we've made.”
Senate opponents wasted no time Monday renewing their promise to block any nomination until they win substantial changes in the make-up and funding of the new bureau.
"Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it," said Alabama Sen. Richard Shelby, the ranking member of the Senate Banking Committee. "No accountability, no confirmation."
Bankrolled by the financial services industry, opponents of the CFPB have vowed to block the nomination of its first director unless changes are made that would substantially weaken its independence.
One year after Congress created a new agency to protect consumers from predatory lending, not a single new rule has been written. American households may have to wait awhile longer before safeguards against unscrupulous lending are put in place.
Established in the more than 2000-page package of financial regulations know as Dodd-Frank, the CFPB was created to consolidate and streamline consumer protection against financial products and services. The goal was to remove consumer protection functions from regulators like the Federal Reserve and Office of the Controller of the Currency that also had a mandate to protect the “safety and soundness” of banks and other financial service providers.
Opponents of the new agency have been arguing since its creation that Dodd-Frank went too far and gave the bureau too much independence.
“The CFPB has more power and authority than almost any independent agency in history,” said Sen. Jerry Moran, R-Kan., in March when he introduced a bill to rein in the agency.
Since then, opponents in the Senate and House have stepped up efforts to water down the agency’s powers, according to Warren, who recently stepped down as a White House adviser tapped to set up the agency.
“They've introduced repeals, they've introduced funding cuts for it, they've introduced ways to undercut its independence and undercut its authority,” she told CNBC this week. “We're out here in a fight. This is David vs. Goliath. But evidently winning once in Congress is not enough. You got to fight every day to hang on to it.”
Opponents of the new agency have used a two-pronged attack. Moran’s bill would curb the CFPB by changing it to a commission structure, undercutting the decision-making authority of its director. The bill would also require congressional approval for its budget. Under Dodd-Frank, the CFPB is funded directly by the Fed.
By directly funding the agency, Dodd-Frank put the CFPB on an equal footing with other major bank regulators that draw funding from exam fees, such as the Fed and the OCC, or the FDIC, which relies on insurance premiums. Those fees are paid directly by banks.
The CFPB also by law has the power to write rules, hold hearings, subpoena witnesses and impose heavy fines on individuals found to have violated consumer laws. Unlike other bank regulators, it can take violators to court rather than referring cases to the Justice Department.
Consumer groups say the need for the CFPB's strong powers were demonstrated by the widespread failure of bank regulators to rein in the predatory and abusive lending that brought about the financial collapse of 2008.
“Proposals to weaken the CFPB threaten the bureau’s effectiveness, which could return us to the days of the Wild West in which risky and abusive practices were allowed to flourish unchecked,” Mike Calhoun, president of the Center for Responsible Lending, told the Senate Banking Committee this week.
Supporters also note that the agency, as enacted, is not without oversight: New rules and actions can be overturned by a two-thirds vote of the Financial Stability Oversight Council. That body, set up by Dodd-Frank, includes 10 voting members from the Treasury, Fed, Securities and Exchange Commission and other agencies.
The bureau’s director is also required to testify to Congress twice a year, file annual financial reports to Congress and submit to an audit by the Government Accountability Office.
CFPB opponents say those measures don’t go far enough and have tried to clip the wings of the new agency. In June the House Appropriations Committee voted to cut the bureau’s first-year budget to $200 million, from the president’s request for $329 million.
“With the debt we've got right now, $200 million is more than ample, more than fair for an agency that isn't required to report to us,” said Rep. Jo Ann Emerson, R-Mo.
Obama has said he will veto any spending bill that includes cuts in the CFPB budget and oppose any measure to undermine its authority.
“We're not going to let that happen,” he said. "The fact is the financial crisis and the recession were not the result of normal economic cycles or just a run of bad luck. They were abuses and there was a lack of smart regulations. So we're not just going to shrug our shoulders and hope it doesn't happen again."
Measure to curb the agency’s independence and authority could also be a tough sell with voters, tens of millions of whom are still struggling to recover from the wave of rogue mortgage lending that sank the U.S. economy and housing market.
“Those who are trying to weaken it are hoping that no one’s paying attention, and I think they’re dead wrong,” said John Taylor, president of the National Community Reinvestment Coalition. “The wounds are still fresh from this financial debacle of fraud and abuse. It’s not like this happened 10 years ago."