A court ruling last month cast doubt on the legality of the fledging U.S. consumer bureau and its director. Ever since, opponents have expressed hope that Senator Elizabeth Warren -- the agency’s most ardent champion -- might agree to trim its powers in return for its survival.
Warren signaled that she’s not yet ready to make that trade, although she didn’t rule any option in or out.
“A strong independent consumer agency is good for families and lenders that follow the rules and good for the economy as a whole,” Warren said yesterday in an interview. “I will keep fighting for that.”
Warren, 63, who has styled herself as an anti-Wall Street crusader, was passed over to be the first director of the Consumer Financial Protection Bureau even though she conceived it as a Harvard University professor and organized it as a White House adviser. After that defeat, Warren ran for Senate from Massachusetts and won.
Now, just a few weeks into her new job, she finds herself making the case for the agency all over again -- this time as a senator with a vote on the crucial Banking Committee. In coming weeks or months, the committee and then the Senate will have to decide whether to vote to confirm director Richard Cordray in his post, which would make a legal challenge pointless.
“The consumer agency is powerfully important to millions of American families,” Warren said. “I fought hard for it in the past, and I’m going to keep right on fighting for it.”
President Barack Obama installed Cordray as director in January 2012 using a recess appointment, a procedure that gives presidents the right to bypass Senate confirmation if an urgent vacancy occurs when the Senate is out of session. He took the step after Senate Republicans filibustered the nomination, leaving the agency leaderless for six months and stalling much of its work.
A federal court ruling last month overturned the validity of three recess appointments made at the same time as Cordray, making him vulnerable to a similar legal challenge. If Cordray’s appointment were invalidated, a judge would also have the ability to overturn actions the bureau took under his leadership, including levying fines against credit card firms for improper marketing practices and proposed new standards for mortgage lending and servicing.
Obama renominated Cordray on Jan. 24, setting the stage for a new vote. Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said the nomination battle “shouldn’t have come to this.”
“President Obama nominated a fair, intelligent, and well-qualified nominee in Richard Cordray, and he deserved an up or down vote in the Senate -- and still does,” Johnson said in an e-mailed statement.
Republicans have signaled that their position on Cordray hasn’t changed, that they oppose a vote on his nomination because its director has too much power. They would prefer the bureau be led by a five-member bipartisan commission. They also object to the bureau being funded by the Federal Reserve, preferring that the bureau’s budget be subject to the usual appropriations process so Congress can decide how to fund it.
The Senate Banking Committee’s top Republican, Mike Crapo of Idaho, said in a statement on Jan. 24 that “until key structural changes are made to the bureau to ensure accountability and transparency, I will continue my opposition to any nominee for director.”
Cordray, 53, can be confirmed by a majority vote, but to call the vote on the Senate floor, Democrats need 60 votes. Since the chamber’s Democratic caucus has 55 members, Democrats need five Republicans to break ranks just to let a vote proceed.
Prospects of that currently look dim. A group of 43 Republicans led by Senate Minority Leader Mitch McConnell of Kentucky said in a letter on Feb. 1 that they would continue to oppose confirmation of any nominee until “key changes are made to ensure accountability and transparency at the bureau.”
“Republicans have been energized on this issue,” said Joseph Engelhard, a former Treasury official who is now senior vice president at Capital Alpha Partners LLC, an investment advisory firm. “I could see Cordray not getting confirmed.”
Republicans have taken steps to press their advantage. Senator Jerry Moran, a Kansas Republican, introduced a bill Feb. 1 that would change the bureau into a commission and subject it to congressional appropriations. Other Republicans are working on similar legislative proposals.
Richard Hunt, president of the Consumer Bankers Association, said that perhaps no lawmaker other than Warren would have the credibility to cut a deal.
“She can help by bridging the gap between Republicans and Democrats,” Hunt said in an interview. “She has an opportunity early out of the gate to forge compromise to show she is a solutions person, not just a political person.”
John Taylor, president and CEO of the National Community Reinvestment Coalition, a consumer group representing more than 600 community organizations, said he thinks Warren will continue to oppose any changes to the bureau.
“I don’t think she was elected to be a wallflower nor does she have that kind of personality,” Taylor said in an interview. “She has strong feelings about protecting consumers and taxpayers.”
In 2007, while still a professor of bankruptcy at Harvard University Law School, Warren wrote a paper proposing the formation of a federal consumer agency designed to help protect ordinary Americans from shoddy financial products, just as the Consumer Product Safety Commission protects consumers from shoddy manufactured goods. Warren’s original name for the bureau was the “Financial Product Safety Commission.”
Creation of what eventually was called the Consumer Financial Protection Bureau was included in the 2010 Dodd-Frank Act and fiercely opposed by the financial industry. Concerned that the bureau’s independence be protected from industry and congressional opponents, Democrats decided to give the bureau a sole director and have it funded and supervised outside the congressional appropriations process.
Some observers have suggested that Warren’s original support for a commission-led bureau might mean she would be amenable to compromise on that issue. Warren spokesman Dan Geldon said such speculation is mistaken.
“Senator Warren thinks the single director structure makes sense and that CFPB should continue to be able to operate, like every other banking regulator, without relying on appropriations for its funding,” Geldon said.
Edward Mills, a financial policy analyst at FBR Capital Markets Corp. in Arlington, Virginia, said the court case has strengthened the Republican position, making a compromise more likely. He said getting Democrats to agree to a commission may be easier than subjecting the bureau to appropriations.
“If this court decision is upheld, then they will have no other choice,” Mills said. “The question is how many changes they would agree to.”
There may be more at stake for Warren and for Republican leaders, Fischer said. The controversy is a chance for Warren to make her mark in the Senate, and a chance for Republicans to put her in her place as a back-bencher.
“If I’m the Senate Republicans, I’m going to say, ‘If I back down on Elizabeth Warren, a junior senator, then I might as well turn over my vote’,” Fischer said.
Mills of FBR Capital Markets said Republicans should be cautious about overreaching. After all, it was opposition to Warren serving director of the CFPB that lead to the current standoff and Warren’s new career as Massachusetts senator.
“She’s a reminder that so far it has not been politically advantageous to block a director of CFPB,” Mills said.
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