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The Consumer Financial Protection Bureau: Not Yet Open and Already Under Attack

The other day, Bloomberg Businessweek reported that the Center for Responsible Lending had spent $96.000 on lobbying in the first quarter of 2011 compared with $130,000 in the last quarter of 2010. In case you didn't know, CRL, a non-profit advocacy organization, backed -- and continues to support -- the creation of the Consumer Financial Protection Bureau.

Like the Consumer Product Safety Commission, the CFPB has the power to recall dangerous items from the market; but it's main thrust, according to its website, "to ensure that financial companies make the true price clear to consumers so they can compare prices and features of consumer financial products and services and make the decisions that are best for them." That's pretty wimpy when you think about it. The Financial Bureau would be a much more powerful consumer tool if it actively recalled or prohibited dangerous financial products, like interest-only mortgages, payday loans whose rates top 500 percent, predatory student loans and so on.

Nevertheless, the Financial Bureau, which is due to launch on July 21, is a godsend for consumers who over the years have been hornswoggled by bankers, mortgage brokers, insurance agents and the like who have hidden in fine print garbage fees, exploding interest rates, balloons, hidden commissions and other gotchas that would take someone with a PhD in finance to understand. And although banks, insurance companies and other financial institutions would never admit it, they would likely benefit from the bureau's existence. Consumers' ability to understand the true cost of financial products could drive the worst -- and riskiest vehicles from the market. If the bureau had been around during the housing bubble, fewer homebuyers would have opted for cukoo-banana mortgages that landed them in foreclosure, left banks and other lenders teetering into insolvency and taxpayers on the hook for billions to bail them out.

The financial services industry, however, doesn't see things that way. Enlightened self-interest is not their strong suit. They don't want their ability to fleece consumers crimped in any way. So they are doing everything they can to keep the Financial Bureau from effectively protecting consumers. Take my word for it or read a post by Jane Bryant Quinn who has itemized all the thousand cuts opponents plan to weaken the new agency. Basically, however, those in Congress looking out for the banking interests -- most of them Republicans -- have introduced legislation to dilute the bureau's powers. If it isn't passed, they say they will reject any appointee to head the bureau, and without a director, the bureau can't launch. Oh, and they claim they will never approve for director Harvard Law professor Elizabeth Warren whose brainchild the Financial Bureau is.

So how does the battle shape up?

Well, when I saw Businessweek's report on the Center for Responsible Lending, I decided to take a look at the money. In the consumer's corner, you have the Center for Responsible Lending with its $96,000 lobbying budget. You can add in another $50,000 from Consumers Union, $10,000 from the Consumer Federation of America and less then $5,000 from the National Association of Consumer Advocates. (These totals by the way come from the Secretary of the Senate which requires lobbyists to file reports every three months.) Another group, Americans for Financial Reform, which is composed of some 250 organizations favoring the Financial Bureau, includes some important players, including AARP, the AFL-CIO, the American Federation of State Municipal and County Employees and SIEU, another union. Americans for Financial Reform has no lobbying budget. Its biggest members have lots of other fish to fry, like unfair labor practices, child care, education, health and retirement. They don't list the Financial Bureau as a major lobbying issue, but let's say they devote 5 percent to it for a total of $310,000. So on the side of consumers, you have -- estimating very generously -- about $471,000.

What about the financial services industry? The lobbying budgets, first quarter, of the big kahunas stacked up liked this: American Bankers Association $2.02 million, American Financial Services Association $75,000, Financial Services Roundtable $2.46 million, Mortgage Bankers Association $639,000, U.S. Chambers of Commerce $17 million, National Association of Federal Credit Unions $420,000, the Independent Community Bankers of America $990,000 and the Credit Union National Association $756,000. Now, to these guys, the effectiveness of the Consumer Financial Protection Bureau is a big deal, a "holy jihad," to some. The Chamber alone, according to The Nation, has a dozen lobbyists focused on the new agency, while the American Bankers Association has eleven. Even if all these folks devote, say, only 15 percent to fighting the Financial Bureau, they have $3.65 million or seven times as much money as the pro-consumer guys. And, of course, I haven't added in the millions in contributions made to politicians by the financial services industry -- about $3.5 million last year or nearly $880,000 a quarter.

So what chance do you think the Finance Bureau has of becoming a strong and effective voice for consumers? I did the math. You draw the conclusions.

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