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WASHINGTON — A key banking industry argument against the creation of a consumer protection agency — that the new division would write rules that conflict with safety and soundness standards — is shaky.
March 29 -
WASHINGTON — A tentative deal struck between Senate Banking Committee Chairman Chris Dodd and Sen. Bob Corker, R-Tenn., to entrust consumer protection to the Federal Reserve Board left observers, including fellow lawmakers, more confused than enlightened, and raised critical questions.
March 2 -
In the past few days lawmakers have traded proposals and counterproposals, with everyone from the Federal Reserve Board to the Federal Deposit Insurance Corp. and the Treasury Department discussed as possible locations for the bureau.
March 1
WASHINGTON — As lawmakers begin hashing out differences between the House and Senate regulatory reform bills next week, a big question is how hard proponents will fight for a stand-alone consumer protection agency.
Even supporters of the House bill, which would create an independent agency, see value in the Senate's approach, which would form an autonomous unit inside the central bank and use the Fed to fund it.
"The advantage obviously is that the Senate has a mechanism for collecting fees to fund the agency," said Rep. Mel Watt, D-N.C., one of the probable House conferees. Under the Senate bill, "we wouldn't have to deal with the budget issues related to independent funding."
The House bill would fund the new agency from multiple sources. It would allocate 10% of the Federal Reserve System's operating costs to the new agency, allow it to charge assessments on large institutions, and appropriate $200 million annually from Congress.
The Senate's approach is simpler, relying solely on funding from the central bank, starting out at 10% of the Fed's operating expenses — roughly $500 million — and growing to 12% in fiscal 2013. (By comparison, the Federal Trade Commission's budget for this fiscal year is $290 million).
Consumer groups, the chief proponents of a stand-alone agency, view the Senate's funding approach as better. They fear that because the House bill also includes an appropriations process, it could be used to hamstring the agency by adding conditions on how its money is used. The Office of Federal Housing Enterprise Oversight, the last safety and soundness regulator that relied on appropriations for funding, was repeatedly caught up in battles over its budget.
"Anything that relies heavily on appropriations is definitely going to be a problem," said Janis Bowdler, the deputy director of the Wealth-Building Policy Project at the National Council of La Raza.
There are also concerns over the House's proposed governance for the agency. Under the Senate bill, the consumer bureau is part of the Fed but headed by an independent director appointed by the president and confirmed by the Senate. The House bill provides for a presidentially appointed director for the first two years, then a transition to a commission structure — something consumer groups said could dilute the agency's power.
"'Independent' would mean that the director is appointed by the president and confirmed by the Senate, that there is not some veto power by a council or a group of regulators who might want to undermine those rulings and that there is guaranteed funding for it. We think that all of those factors are there in the Senate version," said Heather Booth, the executive director of Americans for Financial Reform, a coalition of more than 300 consumer advocacy and civil rights organizations.
But proponents also worry that putting the consumer regulator under the Fed — even if it is fully independent of the central bank — could harm its reputation among consumers.
"Part of this is, how will the agency be regarded? What stature will it have? Will there be future attempts to infringe on its authority?" said Mike Calhoun, the president of the Center for Responsible Lending. "As a freestanding agency, there is a more of a barrier to attempts in the future to rein it in. Everybody may now think of it as in the Fed but largely independent of the Fed, but years from now, maybe people will say, 'Well, it's in the Fed, so maybe we should give the Fed more control over it.' "
Industry observers agreed the consumer agency could eventually fall under the Fed's sway.
"If it sits at the Fed, even if the Fed doesn't have control over its decision process, people who are in the entity may have better access to bank supervisory people and economists to help inform their decision-making process sort of by osmosis," said Oliver Ireland, a former Fed lawyer and a partner in the Morrison & Foerster law firm. "Those effects could be significant over time."
The banking industry has largely moved on from this fight, focusing more of its efforts on other provisions in the Senate bill they want to ensure are not included in the final version, including those governing interchange rates and derivatives regulation.
The Obama administration has also moved on. In a conference call with reporters last week, Michael Barr, the assistant Treasury secretary of financial institutions, said it did not matter. "One sort of rents space from the Fed, and the other doesn't, but they are both paths to real, meaningful independence, … so those paths are two different ways of achieving the president's objective," he said.
It remained unclear how hard House lawmakers may fight for their version. In an interview, Watt said he still favors an independent agency, though he indicated it is not his top concern.
"We obviously would like for it to be housed independently, but to some extent we recognize that the address is less important than the powers and the independence that it has," said Watt, who is the chairman of the House Financial Services Committee's domestic monetary policy subcommittee. "There is still ongoing discussions about all of those things, and I don't know where they will ultimately end up. … We want what we had in the House bill, but … obviously this is a give-and-take process. We understand that we are not the only people who are at this dance."
Other Democrats likely to serve on the conference committee, however, are clearly intent on fighting for the agency's stand-alone status.
"We need to redouble our efforts and make sure that, as we walk into the room as conferees, we get the strongest, most independent consumer protection agency, much as we passed it in the House," said Rep. Luis Gutierrez, the House Financial Services Committee's financial institutions subcommittee chairman.
In an interview, the Illinois Democrat said he does not trust the independence of a bureau housed inside the Fed. "The Fed failed miserably," he said. "Let's not go down the same path again. We need an independent agency."
At least two Senate conferees, Sens. Charles Schumer and Jack Reed, also plan to push for a separate agency.
"Sen. Schumer continues to strongly believe in an independent consumer protection agency, as he has throughout the debate on financial reform. He believes an independent agency is the best way to ensure that consumers' interests are not overlooked or given low priority by regulators, as has happened in the past," said Brian Fallon, a spokesman for the New York Democrat.
A spokesman for Reed said he wants to take the best elements of both bills to ensure the strongest consumer protection possible.
"The Senate bill includes a strong new consumer watchdog, and Sen. Reed believes that the more independent it is the more effective it will be," said Chip Unruh, a spokesman for the Rhode Island Democrat.
A key unknown is how hard House Financial Services Committee Chairman Barney Frank will fight on the issue. Though a spokesman declined to comment, the Massachusetts Democrat has repeatedly appeared dismissive of the consumer agency's Senate version.
"The Fed feels it's like, you know, having your ex-wife's brother living in the house after you got a divorce," Frank said two weeks ago, according to Politico.
