A series of bills aimed at watering down the Consumer Financial Protection Bureau will be up for vote this week. What's a consumer agency that can't protect?
by Abigail Field, contributorFORTUNE -- An obscure but extremely important political war is being fought in Washington right now over the design and power of the Consumer Financial Protection Bureau, the new agency created in the wake of the financial meltdown to protect consumers and help prevent another financial crisis.
Either the banks will win or the American people will win. It's impossible for both stakeholders to declare victory.
Ready for a fight.
The fight will only get more interesting if Elizabeth Warren, currently the special advisor in charge of the agency, gets the nod from President Obama to run it, as is expected. It's worth noting that if this agency had existed before the housing bubble, we would have most likely avoided the worst of it and the financial meltdown it triggered. But it would have been powerless to help under the laws currently proposed. Although many factors fed the crisis, the "but-for" cause was the millions of mortgages that never should have been made during final years of the housing bubble. Those mortgages fraudulently pushed home prices into the stratosphere and filled many of the securities that so quickly turned to junk. The Consumer Bureau could have prevented those loans from being made.
And yet the very players who brought us the bubble and the meltdown -- the big banks that stopped underwriting their loans and offloaded them to investors -- are pushing hard to make the Consumer Bureau so feeble it won't be able to stop a future bank-driven disaster. The banks are spending tremendous cash on lobbying, and their trade groups are telling Representatives to vote for weakening the Bureau.
Two of the bills Plunkett is talking about are scheduled to be voted on by a House Financial Services subcommittee on May 4. Both are ultimately expected to pass both the committee and the House of Representatives.
One bill, sponsored by Rep. Spencer Bachus (R-AL), would render the Consumer Bureau less able to act, less efficient, and thus less powerful, by putting a bipartisan committee in charge instead of a single director. Another bill, by Rep. Sean Duffy (R-WI), would effectively neuter the Bureau, preventing it from issuing meaningful rules.
Not all regulators created the same
To really understand who has power in Washington, it's helpful to contrast the Consumer Bureau's rule-making power with that of the main bank regulator, the Office of the Comptroller of the Currency.
The OCC's rules govern national banks, and thus affect Americans everywhere. Unfortunately for consumers, the OCC often decides that its rules trump state laws, typically using that power to destroy consumer protections. For example, the OCC chose to exempt most banks from state laws against predatory lending, and took away enforcement powers from state attorneys general, as Illinois Attorney General Lisa Madigan explained to the Financial Crisis Inquiry Commission.
To make its powerful rules, the OCC complies with the Administrative Procedures Act, which all agencies have to follow. Once issued, the rules can only be vetoed by Congress, by its passing a new law.
Contrast the OCC's nearly unchecked power to Consumer Bureau's. For starters, the new agency joins only OSHA and the EPA in having to comply with two laws besides the Administrative Procedures Act when it wants to issues rules. And the Consumer Bureau faces a hurdle no other agency does: the FSOC veto (pronounced F-Sock).
Read the complete article at: http://finance.fortune.cnn.com/2011/05/03/the-war-over-consumer-finance-protection-intensifies/?source=cnn_bin&hpt=Sbin
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