Consumer protection cop jabs back at GOP critics

Elizabeth Warren, the Obama administration adviser assigned to set up the Consumer Financial Protection Bureau, said that lawmakers looking to limit the agency's authority should focus instead on the Wall Street “behemoths” aiming to undermine its mission. “If we're going to go out there and spill ink on accountability, we should also ask about how to hold powerful financial institutions accountable,” she said last week.”The idea that we should be worried that some agency that will speak up for consumers might get a little too loud is looking in the wrong direction.” Ms. Warren was responding to complaints by Republican lawmakers that the agency, created by the Dodd-Frank Act in a Democrat-run Congress, lacks accountability. Republicans, who took control of the House in November, have proposed subjecting the bureau's budget to congressional approval and replacing the director's post with a five-member commission. Dodd-Frank gave the bureau power to regulate consumer financial products sold by companies ranging from Citigroup Inc. and JPMorgan Chase & Co. to payday lenders and mortgage brokers. It is scheduled to begin work July 21, a year after President Barack Obama signed the legislation.

FINDING FAULT

His appointment of Ms. Warren has been faulted by some Republicans who say her role as adviser to the Treasury secretary and assistant to the president injects politics into the selection of an impartial regulator. Ms. Warren, a Harvard University professor who specializes in consumer bankruptcy law, said that her professional experience is an asset in the White House role. “I've done 30 years of research on middle-class economic issues, and I bring that background and insight to the work I'm doing,” she said. Ms. Warren said the effort to find a director nominee is proceeding “very carefully and deliberately,” adding that requiring Senate confirmation for the presidentially appointed post makes the bureau accountable to Congress. Dodd-Frank stipulates that the bureau's spending be set as a percentage of the Federal Reserve's operating budget, which would give it as much as $500 million annually. Putting its budget into the appropriations debate would discourage examiners from making decisions that displeased big banks, Ms. Warren said. “Without independent funding, every time an examiner goes in to look at the books and records of a trillion-dollar company, they'll be facing the possibility that that company will come back in the next budget cycle and lobby to have the bureau's budget cut,” she said. “Any significant reduction in funding takes cops off the beat.” The bureau's structure reflects concern expressed by lawmakers who crafted Dodd-Frank that regulators such as the Office of the Comptroller of the Currency failed to regulate big banks adequately before the credit crisis, according to Rachel Barkow, a New York University professor who testified before Congress during debate over the legislation. “The question was how to make the agency independent and not in the hands of banks,” she said. The consumer bureau's accountability requirements are similar to those for existing federal bank regulators, though each agency has some unique rules. The Federal Deposit Insurance Corp.'s inspector general, for example, is funded through congressional appropriations. The OCC and the Federal Reserve have guaranteed funding streams outside the congressional appropriations process. The consumer bureau has to issue twice-yearly reports to Congress on its work, and the director has to explain them to lawmakers. It also must file quarterly reports to the Office of Management and Budget, which audits the agency and reports to Congress. The new agency is alone among regulators in that its rules can be overridden by a two-thirds vote of the Financial Stability Oversight Council, a panel of regulators created by Dodd-Frank. Republicans, in a statement posted on the House Financial Services Committee website March 22, argued that the two-thirds threshold is too high to be meaningful. Ms. Warren argued that regulators who look out primarily for financial stability, such as the OCC, will still have a strong voice at the table. “The OCC's core mission is safety and soundness,” she said. “They won't leave that behind when they sit on the FSOC.”