In War Over CFPB, Democrats See Political Advantage

WASHINGTON — Just seven months ago, Democrats appeared to be boxed in, unable to confirm a leader to the Consumer Financial Protection Bureau without agreeing to demands from Senate Republicans to overhaul the agency's structure.

While they are still unable to install a director for the agency, the Democrats now appear to be using the stand-off to their political advantage. In an all-out media offensive led by the Obama administration, the Democrats have successfully raised the CFPB's profile and put Republicans on the defensive for the first time since the agency's creation. The issue now appears poised to be part of the 2012 election campaign if Democrats can keep up the pressure.

"Democrats can't change Republican votes on the issue, probably, but they can exact a political price and push their election year theme that the GOP is for the rich and they are for the middle class," said Larry Sabato, the director of the University of Virginia's Center for Politics.

The showdown over the director came to a head Thursday, when the Senate rejected a motion to hold an up-or-down vote on Cordray's confirmation.

After the vote, Democrats launched a media blitz with President Obama scheduling an impromptu press conference to discuss the issue. Congressional Democrats, meanwhile, immediately filled reporters' in-boxes with statements expressing outrage over what they claimed was Republican obstructionism.

For an issue that has captivated the financial services world but few others, the flurry of activity appeared to work. On Twitter, which is usually dominated with news about the latest celebrity divorce, the topics "CFPB," "Richard Cordray," and "Senate GOP" were suddenly trending — a term that describes the most popular keywords used on the service.

Aside from some Republican lawmakers attempting to explain their vote, many of those on Twitter were expressing outrage over the vote.

The episode is likely to reinforce Democrats' notion that the issue is a political winner for them, allowing them to score points with their base by standing firm on Cordray while portraying Republicans as too close to Wall Street.

The question remains, however, whether Democrats will be able to successfully keep up the pressure and make it resonate with voters.

Some advocates of the CFPB wondered privately why it took the administration so long to embrace the issue, especially when polls indicate broad support for the bureau from a majority of Americans, including Republicans and independents.

They certainly appear to be trying to make up for lost time.

Last week, Treasury Secretary Tim Geithner held a press conference at the bureau's headquarters, calling on Congress to act quickly to confirm a director and rebuffing the notion that the administration should cave to Republican demands. The White House released a report Sunday on the lack of a director and its effect on nonbank supervision, saying the failure to confirm an agency director left servicemembers and the elderly, in particular, in danger. Administration officials held briefings and gave interviews this week to local media in seven states that were home to Republican incumbents.

After the vote failed on Thursday, President Obama vowed to keep making the Cordray vote a key issue into the 2012 election unless the GOP reverses course.

"I just want to send a message to the Senate: We are not giving up on this," Obama said. "We're going to keep on going at it. We are not going to allow politics as usual on Capitol Hill to stand in the way of American consumers being protected by unscrupulous financial operators. And we're going to keep on pushing on this issue."

Asked whether he may try to use his recess appointment powers, Obama said, "we're going to look at all our options."

The more likely alternative, industry observers said, is that the Senate will continue to hold votes on the motion to consider the nomination, forcing the Republicans to go on record against the CFPB again and again.

Cornelius Hurley, the director of the Graduate Program in Banking and Financial Law and its related Morin Center for Banking and Financial Law at Boston University, said the president is unlikely to compromise. He pointed to the health care debate, where trying to forge a consensus helped Obama pass a bill but angered many of his most ardent constituents.

"A lot of them felt that a more meaningful change was in order and would have rather seen him and that plan go down to defeat and have that be a campaign issue," Curley said. "And I think perhaps you can say that, late in the game, he's learned a lesson and that is that it's okay to lose. Losing isn't always the worst thing in the world."

To turn the loss into a win in the 2012 election, Democrats need to develop a clear message and make a strong connection for voters that Republicans are standing in the way of consumer protection, observers said.

Rather than using the CFPB as a primary issue, Obama and the Democrats will likely wrap it into a larger narrative that the Republicans are cozying up to Wall Street, said Christopher Arterton, a professor of political management at George Washington University's Graduate School of Political Management.

"I think that the two parties are obviously jostling up against each other on several issues that have this kind of establishment versus populist theme to it," said Arterton. "I think that having raised the issue about the millionaires tax and getting ready to run on that, this becomes kind of a second arrow in the Democrats' quiver."

It was a theme President Obama embraced at the news conference, linking the Cordray vote with a dispute with Republicans over extending a payroll tax deduction and other issues.

"But part of what's happened over on Capitol Hill — not just on this issue, but on every issue — is they will hold up nominations, well-qualified judges aren't getting a vote," he said. "I've got assistant secretaries to the Treasury who get held up for no reason, just because they're trying to see if they can use that to reverse some sort of law that's already been passed. And that's part of what gets the American people so frustrated — because they don't feel like this thing is on the level."

To be sure, Republicans have some political advantages in a continued stalemate. On Thursday, Sen. Richard Shelby and other GOP lawmakers sought to portray the CFPB as unaccountable, arguing they are seeking common sense changes to ensure it is not too powerful. Such a position plays well with the conservative base, observers said.

"Democrats are going to accuse the Republicans of caring more about the banks than consumers, and the Republicans are going to turn around and say that people aren't going to get jobs unless the government gets off everyone's back," said Jaret Seiberg, a political analyst with Guggenheim Partners. "And I think both those messages are simple enough that you can put them in a 30-second sound byte and connect with voters."

But Republicans also appear to be feeling the pressure.

During a hearing this week, Shelby pressed a top Treasury official on whether the administration would negotiate with him and other GOP officials. Deputy Treasury Secretary Neal Wolin suggested Democrats had no intention of cutting a deal.

Sen. Bob Corker, R-Tenn., one of the senators targeted by the administration over the issue, suggested at the same hearing that he may have trouble winning re-election.

After months of a unified message from Republicans, meanwhile, Shelby debuted an entirely new argument on Thursday, arguing the CFPB might funnel money to ACORN and liberal groups.

"Other agencies must return to the Treasury funds they receive from enforcement actions. The bureau, however, is allowed to dole out money it collects from fines and penalties to liberal consumer groups," Shelby said on the Senate floor.

"This reveals why the administration and the majority want so desperately for the bureau to be unaccountable. They want the bureau to be a permanent funding machine for their political allies."

Still, there were no indications Republicans plan to back down.

Brian Gardner, a political analyst with Keefe, Bruyette & Woods Inc., said there could be some shifting if the election results become clearer or more predictable. Otherwise, any change in the current strategy would only be forced by some kind of outside event.

"If the agency pursues an enforcement action against one bank, or part of the banking industry, and nonbanks are left alone because the agency does not have the authority to regulate nonbanks yet, then it's possible the industry opponents may reconsider their opposition," Gardner said. Or "if the outcome becomes fairly predictable, one side might decide it's in their interest to negotiate ahead of the election."