By: Michael Crowley
June 30, 2011
Clarification Appended: June 30, 2011
Here's some good news for consumers who feel themselves trampled by soulless banking and credit giants: on July 21, a new consumer-protection agency will open its doors in Washington, with the mission of making everything from mortgage documents to credit statements fairer and easier to understand and generally giving the little guy more power against the financial corporate juggernauts.
Here's the bad news: it's not clear that President Obama will be able to appoint anyone to run it.
It's an unexpected twist to a larger Obama policy achievement that has been slowly unraveling in recent months. Last July, Obama signed a sweeping bill, passed by the Democratic Congress, that overhauled Washington's regulation of Wall Street banks and other financial-services companies whose greed and risk taking helped wreck the U.S. economy. The idea was to prevent another financial crisis through tighter rules and closer supervision. A year later, Obama is fighting off emboldened Republicans who -- backed by Wall Street money and lobbyists -- are trying to gut the measure. The battle is raging mostly out of public view, in the realm of regulators and budgetmakers.
But a more visible showdown is unfolding over what some advocates say is the best feature of the Wall Street reform bill: a new Consumer Financial Protection Bureau created to safeguard ordinary Americans from confusing, sneaky and downright dishonest tactics by the likes of banks, mortgage lenders and credit-card companies. Obama has hailed the office as "a new consumer watchdog with just one job: looking out for people -- not big banks, not lenders, not investment houses ... as they interact with the financial system."
Now the fate of that watchdog is in doubt. At the center of the fight is Elizabeth Warren, a strong-willed Harvard Law professor who has become the most celebrated consumer advocate since Ralph Nader. Warren's supporters -- and there are many, especially on the activist left -- argue that she's the obvious choice to run the new bureau. In part that's because it's her brainchild: it was Warren who asked in a 2007 essay why consumers were protected from buying appliances with unseen faulty wiring that could burn down their homes but not from hidden terms, fees and risks that could sink their finances. Obama picked up her idea for a consumer-protection bureau and campaigned on it in 2008, even before the financial crisis gave the concept some urgency.
But Obama has yet to appoint Warren to the top job, and Republicans have long made clear that they will oppose Warren's appointment if he does. In May, they upped their ante. In a letter to Obama, 44 Senate Republicans -- enough to filibuster any Senate action -- declared that they would oppose any nominee to run the bureau unless Obama agreed to changes in its structure and funding. Democrats say those changes would effectively neuter the bureau and hand the financial industry yet another victory over the little guy.
That leaves Obama with three options, none of them appealing. He can muscle Warren into a short-term recess appointment this summer, an act sure to enrage Republicans and prevent Warren from serving a full term. He can officially nominate her, or someone else, and hope a public-relations effort will force the GOP to capitulate. Or he can try to cut a deal to sacrifice Warren but save her agency, which would surely disappoint his already restive liberal supporters. (One progressive group has warned that such a deal would show "complete and utter weakness.") At the moment, no one is sure what he'll do. Including Warren.
Too Candid for Washington?
"There is nothing about what this agency is doing that should be controversial," Warren says. During a 45-minute interview, conducted on the condition that only policy substance would be discussed, Warren explains that her only true enemy is the fine print on banking terms, loan applications and credit-card offers. "There are two things people ought to be able to ask" about financial products, she says. "Can I afford this thing? And is this the best deal I can get?" Warren says the new consumer bureau will make both of those questions easier to answer by requiring loan companies to explain their terms and conditions in shorter and simpler ways, perhaps reducing mortgage documents to standardized two-page forms. "Right now people drown in a sea of words that are theoretically disclosures, but they scream, 'Don't read me.' This is truly a world in which less is more," she explains.
It's a typically snappy assessment from a woman who, through platforms that include public speaking, blogging and Daily Show appearances (Jon Stewart once joked that he wanted to "make out" with her), has become a celebrity for the Rachel Maddow-watching set. Nor does it hurt that the 62-year-old Warren, who teaches contract law at Harvard, is a former Sunday-school teacher who still has a trace of native Oklahoma twang in her voice, giving her an everywoman quality that belies her elite Ivy League perch. Nader has said Warren "combines rigorous scholarship, a superb sense of needed change and clear ways to communicate those needs to families and individuals around the country."
Those attributes, plus her presence at the bureau's creation (last September, Obama named Warren as a special Treasury Department adviser charged with helping get the bureau organized and launched), make her the natural and even necessary first choice to run it, Democrats say. "She's obviously uniquely well qualified," says Democratic Representative Carolyn Maloney of New York, one of Warren's boosters.
But plenty of CEOs find Warren grating and complain that she has unfairly demonized financial firms. The Wall Street Journal's editorial page has branded her "Elizabeth III." Even her allies acknowledge that she can be a loose cannon, and she has openly accused big financial institutions of "tricking and trapping" consumers.
Perhaps fearful of being labeled sexists, Warren's opponents are careful not to personalize the dispute -- and even offer flattering words for their nemesis. "She's smart and charming," says David Hirschmann of the U.S. Chamber of Commerce, which has fought tenaciously against the consumer bureau. The problem, argue Hirschmann and Republicans in Congress, is the office itself. The bureau will have a staff of several hundred, empowered to snoop around the books of big financial institutions like Wall Street banks. Critics say the office will have too much power and not enough oversight. The bureau's legal mandate to protect consumers from "unfair, deceptive or abusive acts and practices and from discrimination" is dangerously broad, they say, and is a recipe for overburdening businesses. (The bureau is still establishing the exact scope of its authority but wants jurisdiction over consumer-finance companies like debt collectors and makers of prepaid debit cards.) Those critics also fret that the law makes the watchdog's decisions too hard to overrule, requiring a two-thirds vote from the 10-member Financial Stability Oversight Council. Democrats say no other regulator faces such an override.
In return for considering any potential nominees, then, Republican Senators are insisting that Obama agree to have the office run by a five-person board rather than one individual. They also want to change the fact that its budget will come directly from the Federal Reserve, where the bureau will be housed, giving Congress no purse-string power. Without budget oversight, "there's no accountability," says House Financial Services Committee chairman Spencer Bachus.
Democrats protest that a consumer advocate should have clear independence from the pressures of corporate lobbyists in Congress and that turning the bureau over to a five-member board would produce slow and diluted decisionmaking. Besides, Democratic Senator Tim Johnson recently noted, Republicans already had a chance to shape the original bill last year. "We should not relegislate the bureau when it hasn't even had a chance to start doing its job," Johnson said in May.
The Secret War
Though its outcome is uncertain, the Warren fight is only a subplot in a larger battle over last year's Dodd-Frank financial-regulatory-reform bill. Named for its chief Democratic sponsors, Representative Barney Frank and former Senator Chris Dodd, it was a complex beast of a law that tackled everything from CEO pay to bank-capital requirements to rules governing exotic financial instruments like derivatives. But the bill punted myriad details to federal regulators, asking them to hammer out no less than 385 new rules. A year later, that rulemaking is far behind schedule, owing in part to corporate lobbyists swarming regulators. "You're seeing efforts by many Republicans to slow-walk implementation," says former Treasury Department official Michael Barr.
The quiet, rearguard action against Dodd-Frank has raised the symbolic stakes of the fight over Warren. Obama has to draw the line somewhere, liberals argue. But thus far, the White House has offered an uncertain response to the GOP challenge. Some of Warren's backers think Obama's team has simply been kicking a hard problem down the road. "They have a lot of bad options," says one.
Compounding the problem is the Administration's internal divisions. Though Obama has long been an admirer of hers, Warren has never enjoyed enthusiastic support from other key figures, including Treasury Secretary Timothy Geithner, to whom Warren spoke bluntly in a 2009 hearing when she was the official watchdog of the TARP bailout program. ("People are angry," she told Geithner, because the Administration had not been tough enough with bailed-out bank chiefs.) And in a sign of how deep the influence of the big banks reaches, Obama's chief of staff, William Daley, has had to recuse himself from internal deliberations about Warren. Why? Because he's a former JPMorgan executive who reportedly opposed the consumer bureau's creation.
Obama has shown some signs of wanting a deal. The White House has approached several other candidates about the job -- including former Michigan governor Jennifer Granholm and a top deputy of Warren's, Raj Date. That may suggest a hope that the GOP will be more amenable to a candidate other than Warren. But Warren's supporters doubt that Republicans will drop their insistence on changes to the consumer office regardless of who's tapped to run it. "It's time for President Obama to announce his intention to appoint Warren -- whether Republicans like it or not," says Stephanie Taylor, co-founder of the Progressive Change Campaign Committee.
Taylor's group is urging Obama to take the provocative step of a recess appointment of Warren during one of the many weeks Congress will be away this summer. Presidents often employ the tactic of installing an appointee when Congress isn't around to block confirmation, but it's an inflammatory gambit. (And it comes with a downside: recess appointees can serve only until the end of the next session of Congress. In this case, Warren could serve only to the end of 2012.) But liberals say Republicans have left Obama no choice. "You've got to do a recess appointment," says Frank, who has called the GOP's position "the worst abuse of the confirmation process I've ever seen."
Yet some liberals fret that the White House will back down. After all, Obama has recently tried to mend fences with Big Business. The White House may also be hesitant to further antagonize Wall Street donors as Obama gears up for his 2012 re-election campaign. "I think he should appoint her and have the fight. Some things are worth fighting for," Maloney says. But when asked whether Obama is under pressure from potential corporate supporters, she replies, "You'll have to ask the President," then adds, "What do you think?"
In recent weeks, another option for Warren has emerged. Democrats are hunting for a strong candidate to throw against Republican Senator Scott Brown, winner of that stunning 2010 Massachusetts special election, who must defend the seat in November 2012. Some party officials have approached Warren about taking on Brown, and she hasn't ruled out the possibility. The scenario could provide the White House with a face-saving way of avoiding a fight over Warren. "The President is considering a number of candidates for the position of director, but no decisions have been made," says White House spokeswoman Amy Brundage.
Warren won't speculate about her own fate -- in part, she insists, because she doesn't know what Obama will do. But she reiterates that the notion of her as an antibusiness bureaucratic tyrant is overblown. "Why is it that you can safely buy aspirin at the drugstore?" she asks. The answer: the Food and Drug Administration. The consumer bureau would play a similar role for financial products by ensuring their safety and reliability. Warren says that's good not just for consumers but for the whole economy. "Bad consumer financial products contributed to the greatest financial crisis since the Great Depression," she says. And ultimately, Warren says, no one in the government was truly responsible for the subsequent collapse. "By pulling all this together" in a financial-oversight office, "someone's going to be responsible," she says. "Someone's name is going to be on the dotted line." She hopes it will be hers. It remains to be seen whether President Obama agrees.
Clarification: In an interview, Warren did not explicitly say she wanted the job of director. Read more on this clarification here.