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Could the Republicans Defund the Consumer Financial Protection Bureau?

Can the Republicans defund the Consumer Financial Protection Bureau? The answer is no -- at least not as the law stands now. As far as is possible, Congress sheltered the Bureau from hostile political interference. Supporters of the law took a lesson from what happened at the Securities and Exchange Commission, when financial lobbyists poured cash into the pockets of their favorite legislators.

Congress systematically underfunded the SEC, especially the enforcement of the securities laws, while bankers were making billions on toxic mortgages and Bernie Madoff reigned. In other words, they slashed the police department during a crime wave. You can read the gory details in a 2009 report from the Government Accountability Office.
The banks and insurance companies that led the fight against consumer protection might have expected to underfund the new bureau, too. But its budget is beyond their reach.

When the bureau formally comes into being next July 21, it will be part of the Federal Reserve. The Fed is self-supporting. It pays its bills primarily from the interest it earns on its portfolio of Treasury securities. Its independence preserves the country's monetary system. Congress can't threaten to defund the Fed if it doesn't like the level of interest rates. And it can't get its fingers on any corner of the Fed, such as the new CFPB.

By law, the consumer bureau is budgeted at 10 percent of the Fed's operating expenses next year, for a total of about $400 million. It gets higher amounts in 2012 and 2013. That's not all new spending, though. The bureau will consolidate seven consumer agencies currently scattered around the government and working at cross purposes (if they work at all).

The job of getting the bureau started is currently housed in the Treasury Department. So far, 66 people have been brought on board -- some new hires and some from other agencies. The money is being advanced to the Treasury from the bureau's budget, so even the preliminary funding is safe.

None of this stops the conservatives from making noise. Texas Republican Rep. Jeb Hensarling, who sits on the House financial services and budget committees, complains that the agency "assaults the liberties of the consumer." (I guess he means the "liberty" to be scammed by your bank or mortgage service company.) California Rep. Ed Royce wants the bank regulators to be able to veto any consumer protections that the new bureau proposes. (Yes, those would be the same regulators who let the banks run wild for the past 10 years.)

If Republicans get the chance -- which they won't, as long as Obama is president -- they'll take the Bureau out from under the Fed's protection, put its budget into Congress' hands, and undermine its effectiveness, just as they did with the SEC. They'd find it fun to complain about a "failed government agency" after they had personally wrecked its chance of success.

As a political matter, however, the Republicans don't have the wind at their backs. Mortgage lenders and credit-card issuers are equal-opportunity cheaters, using fine print to lift money from Republican and Democratic consumers alike. Public polls favor the bureau's objectives. The conservative websites aren't calling for torches and pitchforks to stop, say, simple disclosures about mortgage costs before you decide on which lender to use. They're too busy using their firepower to defund health reform and the uninsured.

Mortgages top the list of the Bureau's priorities. It hopes to clarify the disclosures and give consumers a one-page shopping sheet for comparing loans. There's a similar goal for credit card disclosures. It will measure success if a credit card agreement could be read in under five minutes, by someone with a median education, who is able to comprehend 90 percent of it.

The Bureau still lacks a director. The set-up phase is being run by Harvard law professor Elizabeth Warren, who first proposed the need for a such an agency. To ascend to the post officially, however, she has to be confirmed by the Senate and that would be a fight. She knows so much about financial deception and is so willing to speak out that the insurance companies and bankers want to toss her out.

Here's what Warren says about credit cards: "Customers should be able to understand the deal, assess the costs and risks, and compare one card to another." Shocking, right?

Another way of hollowing out the CFPB would be to confirm a director more interested in defending banks than protecting consumers. That would be another page out of the SEC playbook. SEC Chairman Christopher Cox, who presided over the "naughty" ('00) years, slowed investigations and blocked enforcements, according to that same GAO report.

Even without a director, the CFPB can move ahead on enforcement powers transferred from other agencies, such as credit-card disclosures. But it can't move in new directions -- for example, writing regulations for payday lenders -- until a director is in place. (Did I mention that payday lenders, of the infamous triple-digit interest rates, are fighting the bureau's jurisdiction, too?)

The mortgage foreclosure mess is a giant advertisement for the necessity of having such a bureau. Had it been in place several years ago, the complaints about shoddy foreclosures could have been brought to light early, before they threatened to strangle the real estate market.

It's important that the new bureau show some successes early, so it can live to grow into a strong consumer voice. The bankers don't want that to happen. The stranglers are at the gates.

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