Why Warren's Role Is Not as Limited as Some Bankers Argue

WASHINGTON — President Obama's appointment of Elizabeth Warren as the top administration official in charge of setting up the Consumer Financial Protection Bureau avoided a probable Senate confirmation battle but continues to raise doubts about her authority.

Bankers and many lawmakers argue that, because Warren is not agency director, her powers are limited to hiring and she cannot promulgate proposals or rules.

"You can build a house; you just can't turn on the lights in the house yet," said Wayne Abernathy, the executive director of financial institutions policy at the American Bankers Association. "The authority is very clear. The authority to do rule writing is expressly given to the director of the CFPB, and she isn't right now."

But consumer advocates and other observers said bankers are just splitting hairs in an attempt to diminish Warren's stature and that she has wide latitude to act.

"I think she will have full authority," said John Taylor, the president of the National Community Reinvestment Coalition. "Eventually there will be a director, but it's wishful thinking on the behalf of people who don't want the bureau to be effective that she won't have this authority."

The issue will become crucial in the next weeks or months as the CFPB is set up. Interviews with regulators, consumer groups and industry representatives show a consensus that Warren will at least have a significant influence on the agency's rulemakings, even if they cannot be issued until a permanent director is in place.

Under the Dodd-Frank law, the Treasury Department has interim power to put together the new agency, but the statute only specifically mentions hiring staff.

For bankers, the inference is clear: Congress did not intend that the Treasury begin issuing proposals or rules on behalf of the CFPB without a Senate-confirmed director. Though Obama appointed Warren an assistant to the president and special adviser to Treasury Secretary Tim Geithner, bankers said, her leeway to do much is constrained.

"I think there is a valid legal issue whether the bureau can issue regulations without a director," said Laurence Platt, a lawyer at K&L Gates. "And that's certainly an argument opponents would make."

Republican lawmakers have agreed that Warren has only limited powers, and they tried to press Treasury officials at a hearing on the issue this month.

"There's some abilities to stand the organization up, but I think what you are saying today is, there is absolutely zero ability to make rules as it relates to consumer protection as it relates to the financial system?" Sen. Bob Corker, R-Tenn., asked Neal Wolin, the Treasury deputy secretary, at the hearing.

Wolin appeared to agree but left himself some wiggle room.

"There is limited rule-writing authority, but it is constrained until such time as there is a permanent director," he said.

But Obama seemed to signal that Warren would have a broad mandate in her new role.

"She will help oversee all aspects of the bureau's creation, from staff recruitment to designing policy initiatives to future decisions about the agency," the president said Sept. 17 upon announcing Warren's appointment.

Warren appeared to allude to those comments on Friday, when she told reporters she felt she had ample powers.

"I asked the president: 'Do you think I'll have the tools to get the job done?' He assured me that I would, and so far I think that's right," she said.

When pressed on the issue, she said "there's plenty for us to work on."

Some supporters argued that, though Warren may face a few legal constraints, she can still lay the groundwork for CFPB actions once its director is in place.

"There's not a single thing in the statute that appears to limit the Department of Treasury's authority in terms of preparing thoughts about rules, enforcement and supervision," said Travis Plunkett, legislative director for the Consumer Federation of America.

Indeed, a Treasury official appeared to hint that Warren was taking that approach. "The Treasury Department has transitional authority to begin building the bureau and laying the groundwork for a variety of future supervision, enforcement and rule-writing activities," said the official, who requested anonymity.

Even Abernathy acknowledged that Warren might play such a role. "There is one thing in finishing a regulation, but there is a lot that can be done to prepare for a regulation," he said. "You start the information-gathering, you can start the research. You start the process of forming a consensus around a solution. I'm sure she can do that. Any Treasury official can do a lot of fact-finding or consensus-building. What can't be done is promulgate something that can be enforced or do the enforcing."

Other industry representatives agreed it would be a mistake to dismiss Warren's authority.

"She doesn't have the rule of law," said Richard Hunt, the president of the Consumer Bankers Association. "However, she does have the bully pulpit and the ear of the president. That does count for something."

Andrew Sandler, a co-chairman of BuckleySandler LLP, said that, as a practical matter, Warren's reach can be as broad as she wants.

"It's very clear the president is looking at Elizabeth Warren to play a significant role in deciding how some of these issues ought to be addressed," he said. "It's less important who writes the rules than what the rules will say."

The administration may also put the issue to rest by nominating a CFPB director soon. Once he or she is confirmed, the agency would be free to write consumer protection rules, with Warren probably providing heavy input.

Some observers said the issue has been raised primarily because bankers have yet to accept the creation of the CFPB, which they adamantly opposed. "The problem with the argument is, the industry is still going through grief, denial and anger," said Platt, the K&L Gates lawyer. "That kind of attack on the rulemaking authority may work in the short run, but it likely is postponing the inevitable."