Ever since last week's Wall Street Journal story on Senate Banking Committee Chairman Chris Dodd's willingness to compromise on the Consumer Financial Protection Agency, reformers have been up in arms warning Democrats that the CFPA shouldn't be dropped. This is perhaps best exemplified by a letter from Elizabeth Warren, the law professor and key CFPA advocate, to reform supporters earlier this week, urging them to contact members of the Banking Committee because "the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again."
With Republicans gaining a Senate seat yesterday, reformers will need to work even harder to secure these protections.
Whether motivated by the response of reform advocates or not, sources in the administration and close to Dodd have begun walking back the WSJ story; one aide told Politico that the extent of Dodd's compromise would be making the agency, intended to be completely independent, an entity within another agency, like the Food and Drug Administration resides within the Department of Health and Human Services, which was confirmed to me by another source.
The aide also described "lines in the sand" around the agency: Its single director must be presidentially appointed, it must have a dedicated source of funding and it must have independent rule-making authority. While there are a variety problems with these compromises from a policy point of view, aides emphasize that no final decisions have been made. Dodd himself said today that even after "a lot of conversation about various aspects of a very complicated set of issues ... the idea that something has already been decided about any aspect of this bill is completely false."
President Obama himself has reportedly told Dodd that the Agency is make-or-break, continuing the administration's quiet insistence that the new consumer protection institution be a central part of regulatory reform. "We remain committed to an independent Consumer Financial Protection Agency," Treasury spokesman Andrew Williams told me.
Unfortunately, Chairman Dodd's focus on a bipartisan bill is eerily reminiscent of the Senate Finance Chairman Max Baucus' three-month negotiation with Republicans over the summer, the true consequences of which are only being appreciated in the wake of Republican Scott Brown's victory in yesterday's special Senate election in Massachusetts. While a Democratic aide tells me that committee staffers have begun to prepare a partisan "plan B" to pass the bill if bipartisan negotiations fall through, there are worries that not enough Democrats support the full-strength CFPA -- an amendment in the House that would have reduced the agency's power by making a council was defeated in a close vote as Democrats joined Republicans seeking to gut the new regulator.
This is a real opportunity for the president to demonstrate leadership in the wake of losing his filibuster-proof majority -- which was never really there, anyway. If Obama were to start confronting his Republican opponents directly on these issues, he could not only achieve his policy ends but also have a chance at improving his political standing come 2010; I'm hearing that the State of the Union will feature some stronger language to this affect. The CFPA, because of its role in making sure regular people have access to fair credit, is a great opportunity for Democrats to rally around a populist policy and browbeat a few Republicans across the aisle to support the legislation.
"The election was a wake-up call to people that you need to be talking to your consitituents about what they understand," says one Democratic Senate aide. "During the health care debate, we got stuck in a lot of inside baseball conversations and that ended up being the focus of the press. It didn't say to the public that 'we understand you have problems and we're dealing with it.' You need to push to get it done."
On the other hand, if the focus remains on the bipartisan bill, problems will only increase. The finance industry and their mainly conservative allies on the Hill won't be satisfied with any compromise that doesn't end with the agency gutted. That's why, as I wrote today, the president and other leading Democrats need to be prepared to draw bright lines around their proposals and create contrast with their opponents.
-- Tim Fernholz
Updated to include Dodd's comments.
