Plan for Consumer Protection Agency Falters in Senate

By
Wednesday, February 17, 2010 at 6:00 am
Elizabeth Warren, chair of the Congressional Oversight Panel (EPA/ZUMAPRESS.com)

Elizabeth Warren, chair of the Congressional Oversight Panel (EPA/ZUMAPRESS.com)

The White House wants it. Senate leaders support it. The House has already passed it. And, in the wake of the worst financial upheaval since the Great Depression, many consumer groups and state regulators say it’s vital if the country is to avoid another economic collapse. Yet the proposal to create a new consumer financial protection agency is, for all practical purposes, dead on arrival in the Senate.

Just call it the public option of the finance reform debate.

[Congress1]Indeed, Republicans are already treating the protection agency like poison. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) may have abandoned his finance-reform talks with Sen. Richard Shelby (R-Ala.), an outspoken foe of a separate agency to protect consumers. But Shelby’s replacement at the negotiating table is Sen. Bob Corker (R-Tenn.), who said recently that, just as Republicans were unanimous in opposing the public plan in the health care debate, so too are they united against an independent consumer financial protection agency, or CFPA — a proposal championed by Elizabeth Warren, head of the TARP oversight panel.

“For Republicans, including me, a free-standing agency is a nonstarter,” Corker told The Hill last week. Instead, Corker wants to carve out a consumer protection unit within a much larger bank regulator being proposed by Dodd.

Yet that idea worries many consumer advocates, who argue that the agency charged with ensuring the soundness of the nation’s financial institutions shouldn’t also be responsible for protecting consumers. It’s not difficult to imagine, for instance, situations in which firms profit from unfair or abusive practices. In those cases, the strategies that bolster the firms’ financial health might do so by taking advantage of the same confused consumers the agency is supposed to safeguard.

“These two missions can conflict,” Travis Plunkett, legislative director of the Consumer Federation of America, said Tuesday at a finance reform discussion hosted by the New America Foundation in Washington. “It would be like putting the Department of Commerce in charge of the EPA. … It would mean that we haven’t learned the lessons of the crisis.”

No matter. Despite the recent Wall Street collapse — a crash that required trillions of dollars in federal help and has left nearly a fifth of the country underemployed — the powerful financial services industry has retained remarkable sway on Capitol Hill. Not only have the nation’s largest firms rebounded to a point where seven- and eight-figure bonuses are again the norm, but they’ve also pumped tens of millions of dollars into K Street to lobby against the Democrats’ reform plans in general and the CFPA in particular.

The industry warns that too much government oversight would stifle innovation and ultimately limit access to the same credit that’s the lifeblood of the economy — not unlike the health insurance industry warning that the public option would ultimately harm the same consumers it’s designed to help. And lawmakers are listening. Not only are Republicans united against the CFPA, but a handful of Democrats — including Sens. Tim Johnson (S.D.), Ben Nelson (Neb.) and Mark Warner (Va.) — are wary as well. That opposition means that the Democrats would have had trouble creating the CFPA even before the surprise victory last month of Sen. Scott Brown (R-Mass.), which has forced the Democrats’ health care reforms to the back burner.

The saga highlights the dilemma facing Democrats in Congress and the White House in the run-up to November’s mid-term elections. On one hand, party leaders want to bolster their populist image; on the other, they’ll have to rally the support of at least a few business-friendly senators to get anything at all through the upper chamber, where 60 votes are required to pass everything. Meanwhile, Democrats also don’t want to alienate the same Wall Street firms that gave heavily to the party in 2008. If the enactment of strict new financial regulations was a foregone conclusion in February of 2009, a year later it’s looking like the Democrats will have to settle for weaker tea.

Another hurdle facing the CFPA, according to some observers, has been the failure of Democratic supporters to sell the importance of their proposal. Tim Fernholz?, writer at The American Prospect, pointed out that most voters have experience with mortgage loans, or car loans, or credit card rates or overdraft fees. The question is: why haven’t CFPA supporters been able to convince those same folks that a consumer protection agency would work to their benefit? “It really should be something that’s politically popular,” Fernholz said.

Jonathan Mintz, commissioner of New York City’s Department of Consumer Affairs, agreed that, despite all the evidence that the industry needs a shorter leash, the Democrats’ messaging has failed to resonate with the public at large. “You can be very specific about the harm that’s being done,” he said. “Suddenly what you’re talking about is a literal problem with a literal solution.”

Not that all Democrats are done fighting for the CFPA. “There needs to be a new agency with new powers for whom this will be a primary mission,” Lawrence Summers, White House National Economic Council director, said last month. More recently, White House Press Secretary Robert Gibbs echoed that sentiment, telling reporters Friday that an independent consumer protection authority remains “a great priority” of President Obama.

Congress is half way there. In December, House Democrats passed a financial reform package that included a stand-alone CFPA. Sponsored by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, the bill would prohibit certain complex financial products, require greater transparency surrounding terms and rein in misleading marketing campaigns. It received exactly zero Republican votes.

Some state financial regulators warned Tuesday that the industry has evolved quickly, with more and more companies dabbling in the complicated products that few seem to understand. “The fringe sector really isn’t so fringe anymore,” said Sarah Bloom Raskin?, Maryland’s commissioner of financial regulation.

Plunkett agreed, noting that the recent turmoil was caused by a series of regulatory failures that allowed the nation’s financial institutions to make a habit of abusive practices — a “parade of horribles,” Plunkett said, that extended well beyond sub-prime mortgage lending into the realm of credit cards, overdraft fees and payday loans. Because no one agency concentrates exclusively on protecting consumers, he said, they were able to focus elsewhere without much consequence — until it was too late.

“It’s a failure of will,” Plunkett said. “No one had consumer protection as a priority.”

And if Corker and the others have their way, that trend will continue.

Comments

20 Comments

Payday Pundit » The faltering CFPA
Pingback posted February 17, 2010 @ 7:20 am

[...] the Washington Independent: The White House wants it. Senate leaders support it. The House has already passed it. And, in the [...]


uberVU - social comments
Trackback posted February 17, 2010 @ 8:24 am

Social comments and analytics for this post…

This post was mentioned on Twitter by washdcnews: Plan for Consumer Protection Agency Falters in Senate http://dlvr.it/23Gq...


Angelo_Frank
Comment posted February 17, 2010 @ 9:43 am

What should the public expect when living under a corporatocracy? Besides, we have the same individuals in the administration, Geithner and Summers, that helped orchestrate the deregulation of the financial institutions, that brought-on the the crash of 2000 and this last financial crisis. It's the repeating of the failed laissez-faire policies of Alan Greenspan (under the tutelage of Ayn Rand), espoused by Geithner and Summers, that will surely bring another financial crisis right around the corner for this country, and the rest of the world.


Epis
Comment posted February 17, 2010 @ 2:01 pm

From the above article:

“Not that all Democrats are done fighting for the CFPA. “There needs to be a new agency with new powers for whom this will be a primary mission,” Lawrence Summers, White House National Economic Council director, said last month.”

Summers may turn out better than expected since he know the street and knows what they do..


The public option of regulatory reform
Pingback posted February 17, 2010 @ 3:14 pm

[...] are popular with the public, approved by the House, and unpalatable to the supermajority Senate–Washington Independent. Sound [...]


chrisjay
Comment posted February 17, 2010 @ 3:17 pm

because, as we all know, regulation=socialism, right?


madashellinmichigan
Comment posted February 18, 2010 @ 4:06 pm

corp a rat shills doing there normal shit of fu_king the public!!


walkman56
Comment posted February 21, 2010 @ 2:04 am

Where the hell is the leadership from the White House on this important,among many others of equally vital need,when it should be front and center? What a disgrace Obama is becoming more and more on a daily basis. I voted for him,but already after one year he has been AWOL far too many times on issues he campaigned on and we fell for.


J. Sanders
Comment posted February 24, 2010 @ 1:45 pm

Like forest fires, only YOU can prevent the abuse of credit. No one can filibuster your own good judgment, or lobby against you doing your homework on a financial decision. This is America, we the people make the great social strides first, not the government.


bill goldman
Comment posted February 27, 2010 @ 6:30 pm

Half of the Senate Democrats and all of the Republican Senators feed on the teat of Wall Street financiers. Obama shows no willingness to side with Elizabeth Warren just as he was unwilling to support Nancy Pelosi's stand on the public option part of health insurance.
In similar fashion he has alienated George Mitchell's efforts to mediate the Middle East dispute because he has sided with the Hawkish Secretary of State. She let Honduras sulbmit to a coup and a Lannie Davis lobbied concession to United Fruit and a renewal ofthe banana republic tradition. She also rattling Russia with her Bush supported anti-missile lunacy and rearming the idiotic madman in Georgia.
Obama's loyalty is to Wall Street and the military chiefs, ot to the electorate that put him into office. He can count on no more than one term.


bill goldman
Comment posted February 27, 2010 @ 11:30 pm

Half of the Senate Democrats and all of the Republican Senators feed on the teat of Wall Street financiers. Obama shows no willingness to side with Elizabeth Warren just as he was unwilling to support Nancy Pelosi's stand on the public option part of health insurance.
In similar fashion he has alienated George Mitchell's efforts to mediate the Middle East dispute because he has sided with the Hawkish Secretary of State. She let Honduras sulbmit to a coup and a Lannie Davis lobbied concession to United Fruit and a renewal ofthe banana republic tradition. She also rattling Russia with her Bush supported anti-missile lunacy and rearming the idiotic madman in Georgia.
Obama's loyalty is to Wall Street and the military chiefs, ot to the electorate that put him into office. He can count on no more than one term.


louis vuitton
Comment posted July 30, 2010 @ 4:05 am

Half of the Senate Democrats and all of the Republican Senators feed on the teat of Wall Street financiers. Obama shows no willingness to side with Elizabeth Warren just as he was unwilling to support Nancy Pelosi's stand on the public option part of health insurance.


louis vuitton
Comment posted July 30, 2010 @ 4:06 am

corp a rat shills doing there normal shit of fu_king the public!!


louis vuitton handbags
Comment posted August 2, 2010 @ 4:36 am

Obama's loyalty is to Wall Street and the military chiefs, ot to the electorate that put him into office. He can count on no more than one term.


lv
Comment posted August 8, 2010 @ 11:51 am

nice show


discount gucci
Comment posted August 17, 2010 @ 8:06 am

Thanks for your share. I like it.


Discount Louis Vuitton
Comment posted August 20, 2010 @ 2:37 am

Obama shows no willingness to side with Elizabeth Warren just as he was unwilling to support Nancy Pelosi's stand on the public option part of health insurance.


Gucci hysteria
Comment posted August 21, 2010 @ 10:58 am

Great. Now i can say thank you!just love your post!


discount Louis vuitton
Comment posted August 31, 2010 @ 8:06 am

Breezing through the festival with her rumoured boyfriend, fellow Burberry model George Craig, the actress looked fab in a pair of Hudson denim shorts, corset top, Louboutin boots and embellished bag. I’m also loving the messy side braid, which has become a huge summer trend.


RSS feed for comments on this post.

Sorry, the comment form is closed at this time.