Dodd to Scrap the Consumer Financial Protection Agency?

When Sen. Chris Dodd (D-Conn.), chairman of the Banking Committee, announced recently that he wouldn’t seek reelection this year, the move was strangely interpreted as a boost for Democratic proposals to rein in the finance industry — proposals that include the creation of a new consumer financial protection agency.

The thinking was that, as a lame duck, Dodd could ignore the opposition of the powerful banking industry and push a bill through the upper chamber. This was an odd argument because (1) Dodd’s retirement doesn’t mean that other Democrats are suddenly free to ignore the bank lobby and go populist, (2) Dodd’s retirement hasn’t affected the recession, which has ironically bolstered the banks’ argument that they shouldn’t be furthered regulated at the same time the government is asking them to lend more, and (3) Dodd has said that he wants to craft a bill that can win the support of Sen. Richard Shelby (Ala.), senior Republican on the Banking panel, who is certain not to support any proposal that regulates the banks as strictly as consumer advocates want.

Today, The Wall Street Journal, citing anonymous “people familiar with the matter,” reports that Dodd’s solution might just be to scrap the consumer financial protection agency altogether.

The Connecticut Democrat, who announced this month that he wouldn’t run for re-election this year,has discussed the possibility of abandoning the push for a new agency during negotiations with key Senate Republicans as a way to secure a bipartisan deal on the legislation.

Mr. Dodd’s offer is conditional, however: Republicans must agree to create a beefed-up consumer-protection division within another federal agency, these people said.

This might allow the Democrats to claim a “for the people” victory in a tough election year, but it sure isn’t going to please Elizabeth Warren, the chief TARP watchdog and leading advocate of the consumer financial protection agency proposal.