A visitor hopping off the elevator on the fifth floor of the nondescript office building at 18th and L streets in Washington, D.C. can’t help but notice the large sign on the easel: “Thank you for all your hard work and dedication! 23 days until our mission becomes a reality.” That would be 23 days between my visit on June 28 and July 21, when the Consumer Financial Protection Bureau, the first major financial regulatory agency created by the U.S. government in decades, “stands up,” in bureaucratic parlance, to become an official agency of the government.
It’s a day for believers in regulation and government protection to celebrate, but the rejoicings will likely be muted. Unless three or four kinds of lightning strike between now and then, the agency will open its doors with no director, and with power over only some of the lending institutions the famous Dodd-Frank law gave it the authority to oversee.
The march to create the CFPB has developed into yet another intensely partisan hurricane whipped into being by a frothing Republican opposition. And sitting in its eye, trying to hire staff, put systems in place, and keep a forceful hand on the rudder, is Elizabeth Warren. One of the country’s leading experts on the slew of issues that affect families and their money, Warren ran the oversight panel that monitored the success of the TARP bailout. The CFPB—an agency designed to protect consumers from financial fraud on mortgages, credit cards, and other loans—was her idea in the first place, and when lo and behold the final version of the Dodd-Frank bill actually included it (a touch-and-go drama for months), she was the natural choice to head it. Which is why Barack Obama named her the interim chief.
But she wasn’t a natural to everybody. Banks and lending institutions of all stripes—national, regional, community, you name it—believe she’s drawn a target on their backs and will cost them and their customers money. Republicans, of course, agree. She’s even hit potholes within the administration: As TARP overseer, she gave some pretty tough grilling to Treasury Secretary Timothy Geithner, who was said to oppose her interim appointment.
The industry lobbying groups—the U.S. Chamber of Commerce, the American Banking Association, the Independent Community Bankers of America, and others—have been pushing hard against her and the agency, as Ari Berman reported in detail in The Nation in June. The resistance appalls her defenders. Rep. Barney Frank (D-MA), who has been pushing hard for her, says he finds it especially galling because he thinks she’s gotten a bump rap and is sure her opponents’ fears about her “would be allayed within a matter of months.”
Since they regained control of the House of Representatives, Republicans have passed measures to weaken the bureau. But the real damage they’re doing is procedural, because at this point, it’s looking as if not only will Warren never head this agency—no one will.
Warren says she’s stunned by the controversy surrounding her appointment, partly because she feels she’s tried hard to develop relationships in the industry and across the aisle. Indeed, some industry figures have made their grudging peace with her and the agency. Republicans, not so much. “I had taken the lesson from the build-up [to passing Dodd-Frank] that no one wanted get up and defend practices that families hate,” she told me. “So when I find today that members of Congress say ‘Let’s cut the legs out from under this agency,’ yes, I’m surprised.”
The case for the bureau is simple. Yes, banks and other lenders are regulated at the federal level, but the regulating is done by different agencies—the Fed, the Office of Thrift Supervision, and the Office of Currency Control are the main three—and at none of the agencies is consumer protection per se the first mandate. Tom Stanton, who served on the staff of the Financial Crisis Inquiry Commission, argues that consumer protection is therefore not done the way it should be. “There’s an old principle that says if you give an organization a major function and a minor function,” Stanton says, “the minor function is likely to diminish in importance.” And so the CFPB would put consumers first and bring every institution under one roof: Mega-banks, community banks, credit-card companies, even payday lenders, debt collectors, and private check-cashers would be overseen by it.
The assertion that consumers weren’t afforded much protection during the 2008 meltdown would seem to be pretty uncontroversial. To bankers, though, the bureau is overkill. “The fate of banks and consumers is inextricably linked,” says Scott Talbott, chief lobbyist for the Financial Services Roundtable, which takes no official position on Warren’s possible appointment. “Focusing on simply the bank will include a focus on the consumer.”
The real outrage is that the agency will likely have no director when it launches on July 21, since the GOP plans to rob the president of his power to make a recess appointment.
Republicans want to weaken the agency by three chief means. First, by replacing the lone director with a commission of five members who would be appointed by the president but subject to Senate approval. Second, by making it easier for a body called the Financial Services Oversight Council to review and reverse rule-making by the CFPB. Third, by forcing the bureau to undergo the unusual step of facing a new appropriating process every year (i.e., so that when Republicans control both branches of government, they can appropriate “zero,” and the thing will cease to exist).
The Democratic Senate won’t pass any of those, but the real outrage here is that the agency will likely be director-less on July 21. Progressives hope Obama will give Warren—whose official confirmation Senate Republicans would block—a recess appointment. But Senate and House Republicans appear to have hit on a way to stop even that. It’s complex, but it hinges on three key points. The first is that under the Constitution (Article I, Section 5), neither house of Congress can adjourn for more than three days without the other house’s consent. The second is that back in the 1990s, according to congressional rules expert Sarah Binder of the Brookings Institution, the Justice Department issued an opinion stating that presidents must wait until that fourth day to make recess appointments. Thus, the pivotal point three: The House, Binder says, can refuse to approve an adjournment resolution, meaning that the Senate could not adjourn for more than three days. Hence, Obama could make no recess appointments.
Binder wasn’t certain whether the 1990s Justice Department opinion was binding or advisory, leaving open the possibility that Obama could decide not to follow it. When I asked the department, a spokeswoman punted the question back to the Senate parliamentarian’s office, which said it doesn’t talk to the press. So it’s arguably a little ambiguous. But in a June 15 letter to their party leaders, 77 House Republican first-termers were starkly unambiguous. They wrote that they’d be willing to take turns staying in Washington to ensure that that fourth day of recess never arrives—not just this summer, but through the end of 2012. So not only will the Senate GOP majority refuse to confirm any appointments, but now they’ve figured out how to block recess appointments, too.
So it seems difficult to imagine that the CFPB will have a director on July 21. And if it doesn’t? Under Dodd-Frank, it keeps its watch over the banks but loses its regulatory power over payday lenders, mortgage brokers, private check-cashers, credit-reporting agencies, debt collectors, and debt-settlement companies. That’s a substantial weakening right there, irrespective of whether the Republicans ever succeed in forcing the White House to accept measures like the five-member panel.
The White House insists that it is soldiering on. “As the president worked to get the bill passed last year, he fought efforts to weaken the consumer protections in the bill and pushed for ways to strengthen them, and he will continue to oppose any efforts that weaken the agency and hurt American consumers,” says spokeswoman Amy Brundage. “The president is considering a number of candidates for the position of director, but no decisions have been made and we will not comment on speculation about potential candidates before the president nominates someone.”
Warren is soldiering on, too. She says, and a Treasury official confirms, that the troubled water that once rocked her relationship with Geithner has long since passed under the bridge. She is working every day in that fifth-floor office to staff up—325 people as of late June, about a third of what is supposed to be the final complement. But other names have been floated for the director’s spot, including one of her top deputies, Rajeev Date. Some insiders say the administration will have little choice but to accept the five-member panel eventually. As for Warren, there is talk in Democratic circles—among people assuming that she won’t get this job—that she’d make a perfect candidate to run for Senate in 2012 in her adopted Massachusetts against GOP incumbent Scott Brown. She doesn’t flat-out deny interest, but she’s not remotely there mentally. “I’m focusing on getting this agency stood up,” she says. “I’d take a bullet for this agency.”
I’m afraid she already has.