The Danger of an Unaccountable 'Consumer-Protection' Czar
The SEC and FDIC are led by boards. Why should one person have sweeping powers over the economy?
By Richard Shelby
Wall Street Journal op-ed July 21, 2011
On July 18, President Obama nominated former Ohio Attorney General Richard Cordray to head the new Consumer Financial Protection Bureau created under the Dodd-Frank Act. Many on the left are disappointed that the president did not choose the Bureau's most vocal advocate, Elizabeth Warren, who currently serves as an assistant to the president and adviser to the Treasury secretary. Republicans, on the other hand, are focused on the key issue: Regardless of who runs it, will the bureau be sufficiently accountable to the American people?
The economic wounds inflicted by other unaccountable government entities are still fresh. Before the housing bubble burst, the government-sponsored Fannie Mae and Freddie Mac were beyond reproach. Along with their beneficiaries, they labeled those who raised concerns about their risk to taxpayers as enemies of the American dream of homeownership.
In 2003 and again in 2005, I sponsored legislation to make these institutions financially safe and sound. Each time, Senate Democrats exercised their rights as the minority party to block the legislation, falsely claiming that my aim was to kill Fannie and Freddie and deny Americans the chance to own a home.
Ultimately, Washington's failure to reform Fannie and Freddie had profound consequences. Since the housing bubble burst, taxpayers have paid $165 billion to bail out these institutions. Worse yet, millions of Americans lost their homes and the taxpayers' tab is still open.
The story of Fannie and Freddie is instructive in the debate over the Consumer Financial Protection Bureau. During the consideration of Dodd-Frank, the Democrats used their overwhelming majority to foreclose Republican alternatives and create the most powerful yet unaccountable bureaucracy in the federal government. And now guardians of the bureau's structure are railing against those who dare expose its flaws. Don't be fooled.
In its current form, the bureau is headed by a single director. Over a five-year term, the director will have unfettered authority over thousands of American businesses, not just banks. While the bureau receives hundreds of millions of dollars of public money annually, the elected representatives of the American people have no say in how it spends this money. Moreover, other regulators have no meaningful ability to prevent bureau mandates that may threaten the financial health of banks. This is dangerous because American businesses depend on banks, large and small, for funding to grow and to create jobs.
Unless Congress enacts reform, it is only a matter of time before this concentration of power is abused or misused to the detriment of American businesses and consumers. On May 5, 43 of my Senate colleagues joined me in writing a letter to President Obama informing him that we will not confirm any nominee to head the bureau absent structural changes that will make it accountable to those it seeks to protect.
Predictably, as happened when I proposed reforms to Fannie and Freddie, myths abound regarding our motives and the implications of our proposals.
One myth is that we are seeking to gut the powers of the bureau. This is patently false. Our proposal does nothing to curtail the powers granted to the bureau in Dodd-Frank.
Another myth is that the bureau is already more accountable than any other financial regulator. This is nonsense. The Securities and Exchange Commission is subject to congressional appropriations and is led by a multi-member panel, as is the Commodity Futures Trading Commission. The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) are also led by boards.
Republicans have proposed three commonsense reforms that we believe will enhance consumer protection while ensuring accountability to the American people:
First, we would establish a board of directors to oversee the bureau. This would allow for the consideration of multiple viewpoints in decision-making and would reduce the potential for the politicization of regulations. This is the very same structure proposed by the president and former House Financial Services Committee Chairman Barney Frank at the outset of the financial-reform debate.
Second, we would subject the bureau to the congressional appropriations process to ensure that it doesn't engage in wasteful or unnecessary spending. This also gives Congress the ability to ensure that the bureau is acting in accordance with our legislative intent.
Finally, we would allow bank regulators (such as the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency) to prevent the bureau from endangering the safety and soundness of financial institutions—as it would, for example, by unduly banning profitable products or imposing unwarranted and onerous regulations that threaten banks' solvency. Because hundreds of banks have failed since the crisis began, we must protect consumers without inducing more failures. This simple change will accomplish that goal.
Regrettably, President Obama has ignored these proposals for months. As a result, Mr. Cordray's nomination is dead on arrival in the Senate and will remain so until these reasonable changes are made. The law allows the administration to delay the bureau's start date for an additional six months. I encourage President Obama to exercise this option and come to the negotiating table.
Notwithstanding the political hyperbole surrounding the creation and launch of the bureau, Republicans are seeking simple changes to ensure accountability while protecting consumers. Even if every one of our proposed changes were enacted, the bureau would still possess every authority it was given on the day the president signed Dodd-Frank into law. Our proposal offers the president an opportunity for bipartisan agreement. I hope that he will choose to work with Republicans to honor and strengthen the system of checks and balances that has served our country so well.
Mr. Shelby, a Republican senator from Alabama, is the Ranking Republican on the Committee on Banking, Housing and Urban Affairs.