Shelby Should Get Out Of the Way and Let the CFPB Get to Work

Sen. Richard Shelby is wily, powerful and not particularly concerned with how he looks when he's throwing his weight around. Winning is what matters.

But it's losing that is behind the Alabama Republican's latest outburst.

Sen. Shelby lost last year when Congress voted for, and President Obama signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act. There is plenty Shelby didn't like about the law, but what he is upset about now is the structure of the Consumer Financial Protection Bureau.

He and 43 other Republican members of the Senate told President Obama in a May 5 letter that they would block any nominee to lead the bureau unless significant changes are made to its governance. For good measure, the next day a Republican staffer made it clear that unless Obama plays ball, all of his financial services appointments will face delays.

Is this any way to run a government? Shelby wants to make changes to Dodd-Frank, and that's his prerogative. But he shouldn't use the nominations process to accomplish his political goals.

And remember, it's not as if the bureau is up and running and issuing rules that make no sense. It won't even have the power to write rules until July 21, the first anniversary of Dodd-Frank's enactment.

The bureau's creation was the subject of long and hard debate, and the language in the law represents a compromise. Republicans opposed creating an independent consumer protection agency, so the Democrats agreed to house the bureau inside the Federal Reserve Board.

Remember when Sen. Chris Dodd cut that deal a year ago? Rep. Barney Frank was caught off guard and told reporters it was a "bad joke." But that's what happens when laws are made — people agree to things they don't want in order to accomplish broader goals, which in this case was assuring the public that Congress was responding to the nation's worst financial crisis in 70 years.

Granted, Shelby was not a party to that compromise, and he voted against the bill. What's more, his concerns are legitimate, especially whether consumer protection regulation may interfere with safety and soundness oversight.

But while he has every right to seek changes to laws that aren't working, he should give Dodd-Frank and the bureau a chance before he tries to crush them.

Shelby's letter to the president envisions all kinds of things — none of which are even close to happening.

According to Shelby and Co.: The bureau "will directly affect every American household by limiting their choices when purchasing financial products, restricting the availability of credit to consumers, and increasing the cost of goods or services purchased using credit."

The letter adds, "How the CFPB director exercises his or her authority therefore will have a profound influence on the future of our economy and job creation."

Maybe. Maybe not. No one, including Dick Shelby, knows yet.

Shelby told Obama that before the Senate will clear any nominee the director must be replaced by a board to make the bureau more accountable.

Shelby also wants the bureau's budget to be subject to the congressional appropriations process rather than have the Fed supply the funding. Of course, Congress nearly shut the government down because it couldn't pass a budget, so it's tough to claim you "support strong and effective consumer protection" while also insisting the bureau's budget be subject to the delays and politics that accompany congressional oversight.

Finally, Shelby wants Obama to ensure that the agencies enforcing bank safety and soundness rules have the ability to block the bureau if it writes a rule that could spur bank failures.

This last point is Shelby's best, but Dodd-Frank does have a safety valve designed to prevent the bureau from going off half-cocked and writing rules that endanger the system. A two-thirds vote of Financial Stability Oversight Council members can overturn a bureau rule. What's more, the bureau's director will get a seat on the oversight council as well as on the board of the Federal Deposit Insurance Corp. and the Federal Financial Institutions Examination Council.

So it's not as if the director will operate in a vacuum. That person will have close contact with all the people charged with safeguarding the banking system.

And as noted three times above, there is not an ounce of evidence that the bureau will write a bunch of rules that will lead lenders to do stupid things.

President Obama should have nominated a director long ago, but fearing a confirmation fight he made Elizabeth Warren an adviser and asked her to start organizing the bureau. She has. Even her critics will concede she has worked tirelessly to ensure the bureau fulfills Dodd-Frank's mandate of protecting consumers.

The Obama administration was reportedly on the verge of announcing nine nominations for financial policy jobs when Shelby decided to step in the way.

Dodd-Frank will never get implemented if the president is unable to assemble his team. The Senate should approve the qualified candidates Obama sends up.

Shelby should have learned this lesson already. Just weeks after blocking Peter Diamond's nomination to the Fed board last fall, claiming the MIT economist wasn't good enough, Diamond won a Nobel Prize.

So let's let the bureau do its job, and then judge what it does — not what Shelby fears it may do.

Barb Rehm is American Banker's editor at large. She welcomes feedback to her weekly column at Barbara.Rehm@SourceMedia.com.