Republicans are determined to prevent the creation of an independent
Consumer Financial Protection Agency because they consider it as
threatening as their current arch-nemesis regulator: the Environmental
Consumer advocates, meanwhile, say the CFPA must have strong,
independent authority to craft and enforce rules. Anything less, they
argue, would be too much of a concession to banks that have gotten
"From the Republican point of view, the idea of a separate agency is
still anathema," said Sen. Robert Bennett of Utah, a senior Republican
on the banking committee. An independent agency, he said, can go too
far in the direction of tight regulation without taking into account
the effect of the rules it creates on business and the economy. He said
he's seen it happen before.
"Can you say EPA?" he asked, lifting his eyebrows. The Republican
Party has regretted for years that President Richard Nixon made the EPA
There's been some movement: Republicans who once pushed for total
elimination of the CFPA are now ready to back a compromise solution
that would make the CFPA subservient to a larger financial regulatory
agency, whose leadership could modify or eliminate any protections
deemed hurtful to business.
"That doesn't mean we're opposed to consumer protection, but a
single agency whose sole purpose is consumer protection would be really
bad news," Bennett said. "I've served in the executive branch. I know
what happens when the culture around a single mission takes over an
agency. Republicans say that consumer protection has to be tied to
regulation so the regulator who's involved with regulation and consumer
protection doesn't go overboard in one direction or the other."
Supporters see the CFPA's independence as essential. "For reform
groups, this effort will not be successful without a stand-alone
consumer agency. Putting consumer protection into a new, larger banking
agency takes the failed structure of the Fed and the other existing
banking agencies and consolidates it. These regulators repeatedly
prioritized banks' business practices over consumers' financial
security, and this proposal is a recipe for more of the same," said
Graham Steele, policy counsel with Public Citizen's Congress Watch.
Rep. Brad Miller (D-N.C.), who championed the CFPA in the House,
where it passed as an independent agency, said that he wants an agency
much stronger than the EPA.
"I don't want the CFPA to be 'another EPA' either," he said. "I want
the CFPA to be a tough, independent watchdog for consumers. My worst
nightmare is a CFPA headed by some embarrassing yes man like [Bush
administration EPA administrator] Stephen Johnson.
How much more slavish to polluters did Republicans want the EPA to be?
We have no idea how many Americans have cancer or children have birth
defects because polluters ran the EPA for the last decade."
When Senate banking committee Chairman Chris Dodd (D-Conn.) crafted
his original financial reform package last year, ranking Republican
Richard Shelby (R-Ala.) made complete removal of the CFPA a condition
for participating in negotiations, people involved in the talks tell
Dodd rejected the conditions and crafted a package without GOP support, introducing it in November.
With Dodd moving forward, the GOP relented and agreed to come to the
table. "That was several weeks ago," Dodd said of the GOP line in the
sand, saying that negotiations are now progressing smoothly.
But Dodd, people close to the negotiations say, is concerned that a
strong, independent CFPA might not be able to get the 60 votes needed
to break a filibuster.
Backers of consumer protection, meanwhile, are itching for the
fight, daring lawmakers to stand on the side of the financial industry.
The CFPA is such a high priority to both parties that Dodd tasked himself with working out a compromise with Shelby, while delegating much of the rest of the negotiations to bipartisan pairs of lower-ranking lawmakers.
"I think it's a question [for Republicans] of 'What does it look
like now?' more than 'Can we have it at all?'" says Sen. Robert
Menendez (D-N.J.), a senior member of the committee. "They don't like
it as a separate agency, for sure."
Sen. Evan Bayh (D-Ind.), a senior committee member, said that "how
to protect consumers, whether to have a stand-alone agency, the powers
of that agency, that's one of the big issues."
Currently, the Federal Reserve is technically tasked with consumer
protection -- but its primary purpose is to protect the safety of the
financial industry. Consumer protection, said Sen. Jeff Merkley
(D-Oregon), a freshman committee member, has been "somewhere in the
Republicans argue that consumers lose out if regulation is too tight
and as a result, businesses close and jobs are lost. Democrats counter
that a business that can't operate without wrecking the environment or
ripping off consumers isn't worth saving.
Merkley and other committee members also argue that defrauding
consumers can itself lead to systemic risk. When homeowners who've been
hoodwinked into mortgages with skyrocketing and hidden monthly costs
default, it's the banks -- and the banking system -- holding the loans
Minority Whip Jon Kyl (R-Ariz.) said that if Democrats want
financial reform to pass in 2010 they'll have to abandon the
Democrats-only approach taken by Dodd late last year. Asked about the
prospects for passing reform, Kyl told HuffPost, "For some kind of
financial reform, probably not too bad. But for what they've been
talking about in [the] banking [committee], not too good."
Before leaving for the Christmas recess, the committee announced bipartisan progress
had been made and members on both sides of the aisle spoke
optimistically. "Contrary to what you see happening on the floor as it
relates to healthcare, I think we leave here as a committee on a high
note, hoping that we're going to have the opportunity to do something
that is very bipartisan and will stand the test of time," said Sen. Bob
Corker has been teamed with Sen. Mark Warner (D-Va.) and charged
with reaching bipartisan agreement on a way to resolve large failed
institutions. The duo has reported more progress back to the committee
than any other pair, said a person familiar with the negotiations.
Meanwhile, committee Republicans are asking Dodd to keep a slow
pace. "I think if Chairman Dodd is patient and continues to work across
the aisle, it is definitely possible to get a bipartisan bill," said
Sen. Mike Johanns (R-Neb.). "It happened with credit cards and I would
have guessed at the time that was going to be very, very difficult to