Originally posted at the Huffington Post.
Given the financial sector’s leading role in the Great Recession, it is not hard to justify a complete re-write of their rules of conduct. Last spring the Obama Administration offered their framework for reform and in December the House passed a sweeping reform bill that included, among many other provisions, the establishment of an independent and stand-alone Consumer Financial Protection Agency (CFPA). Since then, all eyes have been fixed on the Senate. Chris Dodd, as chair of the Senate Banking Committee, was to push comprehensive reform over finish line as one of his last acts before he retires at the end of the year.
Knowing he needed a few Republican votes to overcome the inevitable filibuster, Dodd established a series of bipartisan working groups which would focus on various aspects of the bill. In past eras, such an approach was commonplace. Today, it is novel. Even as this process generated a series of consensus provisions, no republican member of the committee came out in support of the package. One particular sticking point was the proposal for the consumer agency. Many advocates, such as the articulate Elizabeth Warren, argued that creating a strong and empowered watchdog was needed to revamp the incentives toward safer, more transparent, and fair financial products. The U.S. Chamber of Commerce unleashed its corporate voice (and money) in a full-throated campaign to “stop the CFPA.”
In recent weeks, a series of potential compromises were floated in an effort to attract some republican support for the bill. First, the agency would not be independent. Then, several ideas about alternative placements were leaked, first in Treasury, and then within the Federal Reserve, which nominally already has consumer protection responsibilities and their failure to prioritize this work was one of the factors that got us into this mess in the first place. Next, Dodd’s negotiating partners were pushing hard to roll back the purview of the watchdog to protect the scores of payday lenders and check cashers whose high-cost and low-value products have largely escaped any scrutiny from regulators. Their increased campaign contributions were designed to keep it that way. Finally, the talks broke down. On Monday Dodd released a draft bill without any Republican colleagues standing by his side.
So the next two questions to ask are: what’s in the bill and where do we go from here?