May 4, 2011

The House Financial Services Committee’s majority is expected to pass bills to cripple the Consumer Financial Protection Bureau, one of the most important innovations in the 2010 Dodd-Frank financial reform law. The bureau has one purpose: to shield consumers from unfair, misleading and deceptive lending. The purpose of the Republican bills is twofold. One is to deprive the agency of the power to fulfill its mission. Another is to attract campaign money. As long as the Senate and White House are controlled by Democrats, the bills are unlikely to become law. But by advancing them in the House, Republicans can demonstrate how thoroughly they would dismantle reform if they controlled Washington and, in the process, rake in Wall Street donations. What do the banks want in exchange? For starters, they want even stricter constraints on the agency than those that were written into the law last year — and that were expressly included to address banks’ objections to the agency. Under the law, a two-thirds majority of a panel of other financial regulators can veto rules by the consumer bureau — a constraint faced by no other government agency. One of the Republican bills would allow a simple majority of other regulators to veto bureau rules. Worse, the bill would lower the standard for exercising a veto. Under current law, a veto is allowed if other regulators deem consumer bureau rules a threat to system wide stability — a high hurdle. Under the bill, a veto would require only that other regulators find the bureau rules “inconsistent” with safety and soundness. In other words, if a rule might cause banks to be less profitable, say, by curbing tricky and excessive fees, it could be vetoed by bank-friendly regulators. Another of the Republican bills would rewrite the Dodd-Frank law so that the bureau would be managed by a five-member, bipartisan board, rather than one director — a recipe for delay and division. Yet another would block the agency from wielding its full powers until a director is confirmed by the Senate. That’s a way to hold up the agency indefinitely. President Obama and other White House officials have been aloof in the face of Republican rhetoric and bills that call for the demise of the consumer agency. The strategy seems to be to downplay the effort by ignoring it. That doesn’t generally work. In the battle to pass a budget earlier this year, the White House agreed to Republican demands for government and private-sector audits of the consumer bureau. It also agreed to a government study of financial regulation that is clearly intended to emphasize the cost — not the benefits — of regulation. Such audits and studies might seem to be mere annoyances, but as part of a larger effort to derail the consumer agency, they are dangerous steps. Unless the administration offers a quick, full-throated defense, the agency may never fulfill its promise. And the process by which Congress is bought and sold — and consumers and taxpayers are hung out to dry — will be, once again, on full display. Best government money can buy.