Elizabeth Warren Backs Emerging Consumer Protection Agency

Elizabeth Warren Backs Emerging Consumer Protection Agency

Elizabeth Warren, the Harvard professor who originated the idea of the consumer financial protection agency, supports the current version of the bureau that Wall Street reform conference committee negotiators are settling on, she told the Huffington Post.

Though her endorsement isn't a ringing one, Warren, who chairs the congressional panel overseeing the bailout, said that the version emerging from negotiators is strong enough to rein in abuses in the lending industry despite exemptions that Congress has carved out for auto dealers.

"I'm disappointed that Congress seems to be taking the side of auto lenders and big banks over the Pentagon, community banks, and all the public interest groups that oppose an auto dealer carve-out, and there are some other problems as well," said Warren. "But right now the bureau has the authority and the independence it needs to fix the broken credit market. I keep waiting for an incoming missile that means the banks have won their fight to destroy this consumer agency, but that hasn't happened so far -- and I don't think it will."

Indeed, the bureau was left for dead almost as often as the public option was during the health care debate, yet it rose after each assault. Backers of the CFPA -- which has now become the CFPB -- wanted an independent director, an independent source of funding that Congress can't cut off and independent authority to write and enforce rules.

"From the Republican point of view, the idea of a separate agency is still anathema," said Sen. Robert Bennett of Utah back in January. Bennett, a senior Republican on the banking committee, said an independent agency 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 independent. As the debate carried on, however, the GOP largely dropped its public opposition, finding a hostile environment for the argument that consumers shouldn't be protected from deceptive financial products. With the GOP ceding ground, bank lobbyists were left with few allies and the fight moved to more structural issues such as breaking up banks and barring them from trading taxpayer-backed money for their own profit or running undercapitalized swaps desks. The effort to break the banks down in size failed, but the latter two structural reforms are still alive.

While the CFPB isn't a stand-alone agency -- it will be housed within the Federal Reserve -- the Fed does not have authority over it. Instead, the Fed is required to fund the bureau, meaning members of future Congresses can't cut off funding for the CFPB.

Opponents of the CFPB had sought to create a commission that would oversee it, rather than one director -- a proposal partly aimed at preventing Warren herself from running it. In the House, in fact, Republicans proposed an amendment that was designed to eliminate Warren from consideration. That amendment failed.

Opponents also wanted the CFPB to be subservient to bank regulators, arguing that writing and enforcing consumer protection rules could jeopardize the "safety and soundness" of the financial industry. On that front, they met with more success. A council of regulators, made up of the heads of the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Commodities Futures Trading Commission and others would have authority to veto rules created by the CFPB if two-thirds of the regulators insist that the safety and soundness of the system is put at risk by a new consumer protection rule.

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