In an unsurprising move, House Republicans are gearing up to hinder the work of the Consumer Financial Protection Bureau, established this past summer by the Dodd-Frank financial-reform legislation:
While they have little hope of repealing the new consumer agency—which has broad powers to write rules for mortgages, credit cards and other financial products—Republicans can work to influence regulators to blunt the agency's power.
Sending critical letters and ordering up investigations are two time-honored ways lawmakers exert influence. In this case, Republicans have two main targets: the Treasury Department, which is running the new agency until it assumes its full powers on July 21, and Elizabeth Warren, who was tapped as a special adviser by President Barack Obama to lead the setup of the bureau.
One of the reasons that the CFPB was placed inside the Federal Reserve -- and is funded by the Fed -- was to protect it from attacks like these; regulators whose budget is controlled by Congress, like the SEC and the CFTC, are already expecting to see staff cuts that will make it difficult to implement the new rules mandated by Congress.
Still, complaints about Warren's transparency are somewhat strange; as the article notes, she's been very up-front about who she's been talking to and why. She's also been up-front about her goal: Limit fine print and make financial contracts easier to understand. Who could object to that? 96 percent of Americans over 50 want to eliminate fine print -- then-Housing and Urban Development Secretary Mel Martinez couldn't figure out his mortgage documents, and during hearings surrounding the issue last year, Republicans and Warren seemed to be on the same page. Here's a sample:
Republican Rep. Judy Biggert: Ms. Warren, shouldn’t we concentrate on improving financial education and regularly reviewing consumer testing and improving product disclosures which would result in an efficient and innovative market instead of so much government control?
Warren:... I am completely in favor of making these products transparent enough that people can read them, understand them, and make smart financial decisions. Literacy is not going to solve the problem of reading a 30-page credit card contract. Congresswoman, I have assigned these contracts in the past to my own classes at Harvard Law School. Everyone in the room has a college diploma, at least 2 years of law school, and has me as a reason that they had better read carefully, and they cannot figureout the terms.
Biggert: In Illinois, though, lawyers are at the closings and really work with their clients, and part of their responsibility is to explain that. Maybe it is all legalese. We have already suggested so many times to have a one-page disclosure, to have RESPA as a one-page or as a three-page so that people can understand that....Maybe, Mr. Pollock, could you say a little bit more about personal responsibility?
American Enterprise Institute scholar Alex Pollock: The best reason to have really good disclosure—and I completely agree with you, Professor Warren, about good disclosure— is that it enables personal responsibility. The main question, in my opinion, which should be addressed by all credit disclosures is to the customer: Can I afford the debt service commitments I am making? How much risk can I take? I am not against people deciding to take risks, but they ought to know and understand what risks they are taking.
If Biggert -- who signed on to the Republicans' critical letter -- Warren, and Pollock could all agree then that disclosure helps consumers exercise responsibility, why not now?
The problem is that what should be a policy debate is now all about politics. Republicans have made common cause with the financial sector in the wake of the Dodd-Frank bill, and made clear that they would fight any effort to appoint Warren to be the first director of the CFPB. Now that President Obama has appointed her to lead the Treasury Department's effort to set up the agency before it officially begins its work on July 21, efforts to discredit the agency will take place there, not at a nomination hearing.
-- Tim Fernholz
