The foreclosure mess should erase any lingering doubts about the need for a government agency that guards people against abuse by financial firms. Unless, that is, you're a Republican in Congress.
With polls suggesting the GOP is likely to recapture control of the House and narrow the gap with Democrats in the Senate, Republican lawmakers are painting a target on the nascent Consumer Financial Protection Bureau. Rep. John Boehner, R-Ohio, who is tipped to replace Rep. Nancy Pelosi, D-Calif., as House Speaker if the Republicans win, has said he wants to repeal the Dodd-Frank financial reform law that created the CFPB.
Other Republicans are also sharpening their knives. Rep. Ed Royce, R-Calif., who sits on the powerful House Financial Services Committee, told the American Banker this week that protecting consumers (subscription required) should take a back seat to ensuring banks' financial health:
We need to address giving the regulators for safety and soundness the ability to trump the actions on consumer protection if they threaten safety and soundness.In other words, reset regulation to where it was before the financial crisis. In the Senate, Alabama Republican Richard Shelby also has set his sights on weakening the CFPB. Here's what he said in September in pledging to "revisit" Dodd-Frank:
The consumer agency bothers me the most. I thought the creation of it and the way it was created was a mistake.
I don't believe it's good for business, it's not good for the financial sector and ultimately I don't believe it's going to be good for credit for a lot of people who need it. It's going to cost.Republicans are threatening to roll back other elements of financial reform. Rep. Scott Garrett, R-N.J., who also sits on the House Financial Services panel, said earlier this month the party may try to block parts of Dodd-Frank that tighten rules on derivatives. How? By limiting funding for regulatory agencies, including the SEC and the Commodity Futures Trading Commission. As he recently told the Global Power Report, an energy industry trade publication, in discussing plans to undermine Dodd-Frank (no public link):
I think funding will certainly be an area we will be revisiting.That could seriously hinder efforts to clamp down on credit default swaps, collateralized debt obligations and other derivatives that most experts say worsened the financial crisis. Congress has ordered government watchdogs to more strictly regulate such financial products. The problem is that agencies like the SEC need lawmakers to approve their budget every year.
As The New Republic's John Judis notes, we've seen this before in wake of a shake-up on Capitol Hill. After taking control of Congress in the 1994 midterms, during Bill Clinton's first term as President, Republicans led by then Rep. Newt Gingrich of Georgia slashed funding for the EPA, Occupational Safety and Health Administration, and other regulatory agencies. Judis writes:
And the same thing could happen next year if the Republicans win back the House -- or the House and Senate -- this November.Another GOP target next year is likely to be Fannie Mae (FNMA) and Freddie Mac (FMCC). Regulators said Thursday that propping up these government-sponsored enterprises could cost taxpayers up to $363 billion. Such figures are sure to intensify Republican calls to eliminate the housing agencies.
As with talk of a national foreclosure moratorium, however, politics could discourage lawmakers on both sides of the aisle from backing a radical overhaul of the nation's housing finance system. Real estate industry lobbyists, such as the National Association of Home Builders, oppose efforts to privatize Fannie and Freddie for fear it could further disrupt the fragile housing market.
Indeed, despite Boehner's threats, Republicans are unlikely to seek a full repeal of Dodd-Frank. President Obama would veto any such bill. And barring any major surprises, neither party is likely to gain a large enough majority to overcome a filibuster of any proposed changes to the law. As MarketWatch's David Weidner recently wrote:
A shift in either chamber wouldn't necessarily scuttle the major changes called for in the new law. Regulators still must decide how to implement them. Yet those regulators will be called before congressional committees to report on what they are doing.Financial executives, too, are mobilizing in expectation of a shift in Congress. At meeting this week in Boston of the American Bankers Association, the industry's leading trade group, ABA chief Stephen Wilson said the goal on Dodd-Frank is to "strengthen those parts we like, roll back those parts we don't like, roll back those parts that are harmful to our customers."
Any change in the political pecking order or agenda, or a tightening of the regulatory purse strings has the potential to change the ultimate impact of the law.
The ABA's customers aren't homeowners, of course -- they're banks.
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