Obama, Chris Dodd Should Fight for the Consumer Financial Protection Agency

Last Updated Jan 19, 2010 3:48 PM EST

The Obama Administration's proposed Consumer Financial Protection Agency looks increasingly like the late, lamented "government option" in the debate over health reform.

The buzz is that Sen. Chris Dodd is considering ditching the CFPA to secure support from Republican lawmakers for a bill to revamp financial regulation. Dodd, you see, is preparing to exit the legislative scene and wants to leave with a bang. In this case that appears to mean popping a cap in the agency.

But we're getting ahead of ourselves. First, let me point a long, accusatory finger at the GOP. Congressional Republicans, in league with the banking and securities industry, have tried to sabotage financial reform every step of the way. I know it's impolite to point this out; fortunately, we're not in polite company. In December, exactly zero Republicans voted for a House bill aimed at heightening oversight of the industry and otherwise patching up our leaky financial system. Senate Republicans appear no more conciliatory.

Yes, yes, if the cameras were rolling these same lawmakers would no doubt argue that the bill isn't "reform" at all. They'd festoon the talking points kindly provided to them by the financial industry with the usual homilies to the "free market" (not so free, as the bank bailouts show) and with the requisite dire warnings about the burgeoning "nanny state." Then folks like Alabama Republican Richard Shelby, ranking member of the Senate Banking Committee, would cash in his chit and hold a fundraiser.

Such opposition has almost nothing to do with the policy implications of overhauling financial services, after the industry helped haul us over the edge, and everything to do with politics. The Republican playbook -- on banking, health care, energy and cuddly toys, if that were an issue -- is to deny the White House and their allies on Capitol Hill anything resembling a legislative win. And damned the torpedoes.

Are the Democrats, if not reflexively hostile to financial reform, at least complicit in running it through the sausage grinder? You bet. And Dodd, for all the Senator's evident concerns about his political legacy, might've accomplished more over his career if he'd spent less time playing footsie with Big Finance.

Which is exactly why Dodd should show some spine (which he'll need to walk off into the sunset) and refuse to budge on the CFPA. The health reform bill, for all the glass-chewing over a government-sponsored insurance plan, is still worth passing. The same can't be said of the financial reform bill the Senate will take up later this month.

Establishing an independent agency charged expressly with protecting consumers from financial abuse (think U.S. Food and Drug Administration) is central to reform. If the financial crisis proved anything, it's that this is an industry that must be watched and, if necessary, stopped. The corollary is that the existing bank regulatory bodies aren't up to the job. Entombing the CFPA within the feckless, industry-smooching OCC, as is apparently being discussed, is tantamount to burying the proposed agency alive.

There are political risks for the White House around this issue. On heath care, Obama certainly paid lip-service to the idea of a public option. But early on he signaled a willingness to sacrifice it for the greater good, which in this case means passing a historic, if flawed, health bill.

Not so with the CFPA. The President campaigned for it from the beginning. Said Obama in June:

... one of the most important proposals is a new oversight agency called the Consumer Financial Protection Agency. It's charged with just one job: looking out for the interests of ordinary Americans in the financial system. This is essential, for this crisis may have started on Wall Street. But its impacts have been felt by ordinary Americans who rely on credit cards, home loans, and other financial instruments.
Capitulating to Wall Street on the administration's signature financial reform proposal would hardly sit well with Main Street. And if Dodd really wants to ensure his legacy, he'll stand up for the CFPA -- and for consumers.
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    Alain Sherter covers business and economic affairs for CBSNews.com.