The Bank Lobby Steps Up Its Attack on Elizabeth Warren
Research support was provided by The Investigative Fund at The Nation Institute.
On May 24 Elizabeth Warren was back on Capitol Hill testifying before Congress, defending her brainchild, the new Consumer Financial Protection Bureau, a key element of the 2010 Dodd-Frank financial reform legislation. Warren is a major celebrity in Washington, an Oklahoma-born Harvard law professor who’s done more than anyone since Ralph Nader to put consumer protection on the national agenda. The room was packed with reporters, consumer advocates and lobbyists. GOP Representative Patrick McHenry, who chaired the House Committee on Oversight and Government Reform hearing, could barely hide his disgust for the CFPB and Warren, accusing her of lying to Congress and frequently interrupting her answers. “In a few short weeks,” McHenry warned ominously, “the bureau will become a powerful instrument in the hands of progressive regulators.”
In part because it’s one of the strongest aspects of Dodd-Frank, the CFPB has become a favorite target of Republican attacks, right up there with George Soros, ACORN and Planned Parenthood. It’s been called “one of the greatest assaults on economic liberty in my lifetime” (Representative Jeb Hensarling) and “the most powerful agency ever created” (Representative Spencer Bachus). The Wall Street Journal opinion page denounced Warren and the bureau three times in one week in March. And the bureau hasn’t even officially launched!
On May 13 the House Financial Services Committee passed three bills designed to weaken the CFPB, which goes live on July 21. One was sponsored by freshman Representative Sean Duffy, the telegenic former star of The Real World: Boston. When he entered Congress, Duffy admitted he “wasn’t very familiar” with “banking issues, housing issues, insurance issues. These are specific issues that I didn’t deal with in my entire life.” Yet within a few months he found himself denouncing the CFPB as a “rogue agency” with an “authoritarian structure” and introducing legislation to give existing banking regulators greater authority to override the bureau’s new rules. Other bills passed by the committee sought to change the structure of the bureau from a single director to a bipartisan commission, making it harder to act quickly and decisively, and prevent the bureau from assuming power until the Senate confirms a director. In a rather stunning bit of hostage taking, forty-four Senate Republicans recently announced they would not approve any nominee for the CFPB unless the GOP proposals were implemented. (Warren and CFPB officials declined interview requests.)
At one May hearing Duffy claimed his bill would protect small bankers and credit unions in his district. “I come from central and northern Wisconsin,” he said. “This is not Wall Street, I promise you.” Yet the legislation has endeared him to the most powerful financial interests on Capitol Hill and K Street’s lobbying corridor. In recent months groups opposed to the bureau, such as the American Bankers Association (ABA), the American Financial Services Association (AFSA), the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), the Mortgage Bankers Association (MBA) and the National Association of Federal Credit Unions (NAFCU), have donated thousands to Duffy’s re-election campaign. “Why is Sean Duffy sponsoring this legislation?” asks Ed Mierzwinski, director of the consumer program at USPIRG. “How many big banks are in Wausau, Wisconsin? This is all about money.”
The three chief sponsors of the CFPB bills—Duffy, Bachus and Shelley Moore Capito—received a total of $1.4 million from the finance, real estate and insurance sector during the 2010 election. Now they’re returning the favor. The GOP Congressional assault on the CFPB is a clever way for the caucus to appeal to the Tea Party’s antigovernment fervor while attracting prodigious campaign contributions from Wall Street and forcing the Obama administration to play defense on yet another critical piece of legislation. ”This is a preview of coming attractions,” says Congressman Barney Frank, the ranking Democrat on the Finance Committee, “and the audience is the business community and their donors.”
The idea for the bureau emerged from a 2007 essay by Warren in Democracy. “If it’s good enough for microwaves, it’s good enough for mortgages,” she wrote. The horror stories of the financial crisis—ballooning subprime mortgages, payday loans with 400 percent interest rates, inescapable credit card debt—added urgency to her proposal for a new consumer agency modeled on the Consumer Product Safety Commission.
During last year’s financial reform debate, Congressional Republicans, along with some bank-friendly Democrats, launched a furious campaign to defeat the bureau. The US Chamber of Commerce led a $2 million industrywide ad campaign opposing the CFPB, using a butcher as its unlikely public face. “Virtually every business that extends credit to American consumers would be affected—even the local butcher,” one ad claimed. “I don’t know how many of your butchers are offering financial services,” quipped President Obama after meeting victims of lending abuses. The financial services firms that will fall under CFPB purview—big and small banks, payday lenders, mortgage brokers—did all they could to weaken it and create special exemptions for their industries, yet the consumer bureau improbably became “one of the central aspects of financial reform,” according to Obama, and the most tangible victory for consumers. Under pressure from consumer advocates, the administration named Warren a special adviser to Treasury Secretary Tim Geithner, her onetime foe, and the bureau’s interim director. Now Congressional Republicans and their industry backers are mounting a last-ditch effort to constrain the CFPB before its launch. Warren, according to associates, views this as an attempt to “pull the arms and legs off of the agency.”
* * *
The CFPB will inherit consumer protection responsibilities from seven agencies and assume powers to police “unfair, deceptive, or abusive” financial services products. It will write new rules and enforce existing ones for banks with assets of $10 billion or more and the tens of thousands of companies in the shadow banking industry—payday lenders, student loan companies, mortgage brokers, debt collectors, pawn shops. Smaller banks will be subject to CFPB rules, but other regulators like the FDIC will enforce them. According to Americans for Financial Reform (AFR), a coalition of consumer groups, “The CFPB has authority to write rules affecting mortgage down payments and disclosures, loan modifications, credit card rates and fees, bank overdraft programs, credit score usage, and eligibility for student loans, credit cards, pre-paid cards and more….[and] to impose fines on companies, require restitution (repayment) to aggrieved consumers, rescind consumer contracts and/or file lawsuits against firms that violate its rules.”
The bureau’s mission is mostly about making it easier for consumers to understand the often indecipherable fine print that financial firms throw at them. To do that, Warren wants to strike a balance between government intervention and personal responsibility. “If there had been just a few basic rules and a cop on the beat to enforce them, we could have avoided or minimized the greatest economic catastrophe since the Great Depression,” she wrote to Congress. “In the future, the new consumer bureau will be that cop.” It even has a shield as its logo.
Under an unusual arrangement, the bureau will be housed in the Federal Reserve but have independent authority. Despite claims about its unlimited power, the CFPB is the only banking regulator whose budget will be capped (for now, at 12 percent of the total Fed budget) and whose rules can be overturned (by a two-thirds vote from the Financial Stability Oversight Council, a new group of top federal economic policy-makers). Warren calls the CFPB the “most constrained of all federal agencies.” Nonetheless, its creation was a historic feat. “The last time this country made any significant pro-consumer advances was in the ’70s,” Warren said, referring to Nader’s heyday. “The resulting bureau has the independence and the authority it needs to get the job done,” concludes AFR.
Warren and the CFPB are up against what she estimates to be a $3 trillion consumer financial services industry, which views the bureau as a potentially grave threat to its prosperity. According to the Center for Responsive Politics, 156 groups—the vast majority representing corporate interests—lobbied the government about the CFPB in the second half of 2010 and the first quarter of 2011. The list ranged from JPMorgan Chase to McDonald’s. For some in the business community, the CFPB represents an annoying “nuisance,” says Scott Talbot, chief lobbyist for the Financial Services Roundtable, while for others it’s “holy jihad.”