- MAY 25, 2011
The consumer financial czar doth protest too much.
No one in Washington does moral indignation better than Elizabeth Warren, the de facto head of the new Consumer Financial Protection Bureau. And yesterday she was in high dudgeon on Capitol Hill attempting to repel efforts to hold her new bureaucracy more accountable. We hope Republicans keep at it.
As George Mason University law professor Todd Zywicki explained at the same hearing yesterday, the consumer bureau’s structure “may be unprecedented in American history.” It has a single director, accountable only to the President. Its annual budget isn’t subject to Congressional appropriations. Its regulations may be overturned by the new Financial Stability Oversight Council—a point Mrs. Warren likes to repeat—but only with the very high bar of a two-thirds vote.
That’s why a May 2 letter from 44 Senate Republicans to President Obama deserves attention. The Senators propose three reforms: a board of directors to oversee the bureau; submitting the agency’s budget to annual Congressional appropriations; and letting other regulators assess the implications of new bureau rules on the safety and soundness of the financial system.
Mary Kissel of the editorial board has an update on Elizabeth Warren’s amazing appearance before Congress.
Under the Dodd-Frank law, the bureau’s director reports only to the President and can only be removed for “inefficiency, neglect of duty, or malfeasance.” So a single person who’s very hard to fire would have regulatory authority over consumer financial products and services ranging from mortgages to credit cards. Other financial regulatory agencies, such as the Securities and Exchange Commission, are governed by a board.
The bureau’s director can also set the agency’s budget annually, with a ceiling of several hundred million dollars. As the Senators point out, there’s no mechanism to ensure those taxpayer monies are used prudently. Other consumer protection agencies face annual Congressional budget scrutiny—an ever more important democratic check amid ballooning deficits. Mrs. Warren yesterday evaded this criticism by calling the bureau a “banking regulator” and comparing it to the Office of the Comptroller of the Currency (OCC), which isn’t subject to Congressional appropriations.
But her bureau isn’t a traditional banking regulator like the Federal Reserve or OCC that ensure the safety and soundness of the financial system. The bureau’s mandate is to regulate consumer-financial products, while the impact on bank health is someone else’s problem. For precisely this reason, House Republicans want to let the Financial Stability Oversight Council overturn a bureau rule with a simple majority, rather than two-thirds.
Mrs. Warren’s response to these efforts has been to say her critics want to “stick a knife in the ribs” of the agency; release a statement claiming Congress intends to “defund, delay, and defang” her agency “before it can help one family”; and in written testimony yesterday, declare that, “While making baseless claims might be shrewd tactics for those who want to undermine the Bureau’s work, they are flatly wrong.”
Mrs. Warren knows all about shrewd. Though her bureau doesn’t assume full powers until July and President Obama still hasn’t formally nominated a bureau director, she has been among those trying to extort $20 billion from banks for their mortgage foreclosure mistakes. She’s also stacking her agency with liberals who want to allocate credit and punish the banks.
The political betting is that Mr. Obama will continue to evade Senate scrutiny by giving her a recess appointment as director. If Republicans won’t put her agency out of business, the least they can do is rein it in.
