Post Warren, the Battle Over the CFPB is Far From Over

A Two-Pronged Strategy

Given their fierce opposition to Dodd-Frank in general, and the Consumer Financial Protection Bureau in particular, it’s no surprise that Republicans made big use of steps two and three of the lawmaking process to kill the bureau, or drastically limit its power, almost as soon as they took control of the House of Representatives in January 2011.

On the administrative front, Republicans have held multiple hearings to chastise Elizabeth Warren, the president’s special assistant in charge of setting up the agency, for her role in advising state bank regulators on their investigation into illegal mortgage servicing practices that led to thousands of homeowners being evicted illegally.

Some of those hearings became downright hostile, like the one in May in which Patrick McHenry (R-NC) accused Warren of lying.

On the legislative front, Republicans introduced more than a dozen separate bills to decrease the bureau’s authority. Some of the bills were redundant, and eventually they were reduced to four. All four passed out of committee. They all may receive votes on the floor of the House as soon as this week.

The Bills to Decrease the CFPB’s Authority

H.R. 1

This is the Republican budget bill, which includes more than 400 amendments regarding different ways to reduce the national debt. One section of the bill would cut funding for the Consumer Financial Protection Bureau and other financial industry regulators. The bill would cut the agencies’ budgets by 9% overall.

For the bureau, the Republican budget would mean an end to its financial independence. Under Dodd-Frank, the bureau’s budget is set as a percentage of the Federal Reserve’s funding, most of which comes from fees levied on financial firms.

If passed as currently written, the House budget proposal would change that, bringing the bureau’s budget under the direct control of Congress. It also would cap the budget at $200 million a year, compared to the $550 million the bureau is scheduled to receive under its current funding scheme.

Republicans say the budget changes are needed to place a check on the administration’s power, and make the bureau more transparent and accountable to taxpayers.

“The Congress’s ultimate authority over the administration in a balance of powers under Mr. Jefferson’s Constitution is the power of the purse,” says Becker. “That check doesn’t exist under the current structure.”

The bureau’s defenders counter that cutting the CFPB’s budget, and bringing it under Congressional authority, would strip it of its power to act independent of political pressure from legislators who receive considerable campaign donations from Wall Street. It’s worth noting that all other bank regulators get their funding from the Federal Reserve Board. If the CFPB operated under the Congressional budgetary umbrella, it would be an exception to that rule.

“Subjecting the budget to the appropriation process is just another opportunity to politicize the whole process,” Banks says.

[Article: Obama: I’ll Veto Any Bank Regulator Budget Cuts]

H.R. 1121

H.R. 1121 eplaces the bureau’s single director with a bipartisan five-member commission. The Obama administration’s announcement of its plans to nominate former Ohio Attorney Cordray to become the bureau’s director ended months of speculation over whether Obama would nominate Warren, a favorite of liberal and consumer groups who is widely reviled on Wall Street.

But Cordray’s nomination is unlikely to end the fight over H.R. 1121 and Republican efforts to change the bureau’s leadership structure. In May, 44 Republican Senators wrote a letter to President Obama saying they would block any nominee, whether it’s Warren or someone else, until the administration agrees to change the bureau’s leadership structure and budget.

“Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it,” Senator Richard Shelby, the ranking Republican on the banking committee, said in a statement on Sunday.

A three- or five-member board would naturally provide “a more balanced approach to regulation,” Becker says, “and also prevents you from the situation where Democrats come in and you go left, and Republicans come in and you go right. It’s more stable.”

Some consumer advocates counter that replacing the director’s job with a committee waters down the bureau’s focus and authority.

“These proposals put the foxes in charge of the chicken coop,” says Ed Mierzwinski, director of the consumer program at the U.S. Public Interest Research Group.

The Bills (cont.) »