Steady on, consumer-protection observers, there's another twist in what has already been a byzantine tale: After a compromise that housed a consumer protection bureau with an independent director and budget inside the Federal Reserve appeared to be settled, reports emerged that ranking Senate Banking Committee Republican Richard Shelby has offered yet another proposal to create an independent consumer financial protection agency (CFPA). This came after Shelby had opposed such an idea publicly for months.
It's not the only flip-flop we've seen lately. Last week also brought the news that the Office of the Comptroller of Currency, a bank regulator that had also opposed the CFPA and other new regulations, suddenly changed its tune as well. What's going on here?
It's clear that momentum is gathering on the side of the reformers; the administration and Congress consider this a winning issue. Noam Scheiber thinks that this is part of an anti-reform strategy to concede on consumer protection while weakening other sectors of the vast regulatory overhaul, effectively using the tangibility of consumer protection to hide loopholes in the more abstract domains like, say, derivatives reform.
While consumer protection is critical, it has begun to overshadow other, equally important parts of the bill. As people began to criticize Dugan, they consistently invoked Elizabeth Warren, who is not coincidentally the most visible reformer and the person most connected with consumer protection. Meanwhile, no one is calling for Michael Greenberger -- a derivatives expert and former Brooksley Born deputy -- to take over the CFTC. That's not a slight at Mike, but it is a demonstration of how the popular imagination's focus on consumer protection has left other important issues under-considered.
This scares me quite a bit. While the Obama administration and Congressional Democrats have fought hard for consumer protection, their overriding concern has been passing a financial reform bill, ideally in a bipartisan manner, to bolster their election chances in the upcoming midterms. That's why you see the watering down of the Volcker rule, an unwillingness to fight for hard boundaries on regulatory discretion, and a general sense that the details with be dealt with later. Conservatives and others who oppose regulatory reform see this dynamic as well and are happy to take advantage of it.
But that doesn't mean the jig is up. It's unclear how Dodd will respond to Shelby's offer, or what the substance of the proposal is (it's hard to see how it differs from the current compromise, for instance). We also don't yet know how Dodd plans to handle the floor fight over the bill -- expected mid-May -- or what the administration will do to push Dodd. This much should be obvious: If opponents of reform now see more advantage in conceding one issue, rather than blanket opposition, that should be the sign that now is the time for reformers to push as hard as they can.
-- Tim Fernholz
