Even if Republicans dominate, Congress has limited power to undermine the financial reform

Republicans vow to scale back the sweeping overhaul of financial regulations should they take over as the majority party in the House and possibly even the Senate in Tuesday’s midterm elections. But they might not be able to alter the reform law much.

Key components of the law, particularly the new consumer protection agency, were constructed by Democrats to be impervious to attempts to change or hobble them.

“It was designed to make it difficult to attack,” said Edward Mills, a financial policy research analyst for FBR Capital Markets & Co.

Even though House Minority Leader John Boehner (R- Ohio) and other top Republicans have vowed to repeal the law, President Obama’s veto power makes it unlikely that they would succeed.


If Republicans win control of the House, as most experts predict, they could try to use annual funding bills to force changes.

The threat to starve an agency of money or to attach restrictions preventing funds from being spent on a specific regulation usually is the greatest leverage lawmakers have over the White House. And it looms as a potential, though limited, strategy for Republicans to battle healthcare reform and regulation of greenhouse gases.

Republicans also could use appropriations to limit the ability of the Securities and Exchange Commission and the Commodity Futures Trading Commission to enact new financial rules.

But significant parts of the financial reform law are not subject to the congressional appropriations process.


A new council of regulators, which will monitor the financial system for signs of risk, and two powerful agencies created by the law, the Consumer Financial Protection Bureau and the Office of Financial Research, have independent funding streams that do not rely on Congress.

“No matter what happens Tuesday, we’re very happy with the way that the law built a foundation to protect the CFPB from political harassment,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. The group has been a strong supporter of the consumer agency.

The consumer protection agency was the law’s controversial centerpiece, with broad power to write and enforce rules covering mortgages, credit cards and other lending. Most Republicans and much of the financial industry opposed the agency, calling it a heavy-handed intrusion into the private sector.

Several Republicans complained loudly when Democratic leaders pushed through annual funding for the agency — about $500 million this fiscal year — directly from the Federal Reserve, where the agency will be housed. The Fed already has begun to fund the agency, which is being overseen by consumer advocate Elizabeth Warren.


Rep. Scott Garrett (R-N.J.) said Obama and Democrats made a conscious decision to circumvent congressional oversight in creating the agency.

“Normally when you have the head of the agency come to a congressional hearing, they understand [that] if they are not in tune with what Congress wants, they are subject to withholding funds. Here, that’s not a concern,” Garrett said. "[Warren will] be getting $500 million regardless of what she says in committee. I don’t know how that can stand.”

Garrett, a senior member of the House Financial Services Committee, said Republicans would try to change the agency’s funding mechanism if they win the majority.

But that would require passing legislation, which Obama could veto. And even under the most optimistic scenarios for Republican gains on Tuesday, the party would be far short of the 60 votes needed in the Senate to overcome a filibuster and the two-thirds majorities in both houses needed to overcome a veto.


The independent funding was key to keeping the consumer agency from being gutted if political power shifted in Washington, analyst Mills said.

“This is something consumer groups have been pushing for a long time, and they didn’t want a hostile Congress or hostile administration undoing that work,” he said.

Warren said she was not worried about the effect of a Republican majority on the agency.

“This agency has enemies, political and economic,” she told The Times this week. “That won’t change what I do.”


Other agencies involved with implementing the law have long been outside the appropriations process.

The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, both of which have expanded powers under the financial reform law, are funded by fees collected from the industry.

And the Federal Reserve gets its funding from interest on government securities it holds, fees from the industry and interest paid by banks

But some financial regulatory agencies are subject to appropriations and are concerned about funding battles with Congress.


Bart Chilton, a Democrat and member of the Commodity Futures Trading Commission, warned publicly in September that the agency, which must write new regulations for complex financial derivatives, needed more money.

“The implementation of that good and historic law is in jeopardy if the CFTC doesn’t have increased resources,” he said.

SEC Chairwoman Mary Schapiro has said her agency needs to hire 800 additional employees to handle new obligations under the law. During the financial reform debate, the SEC and some Democratic supporters tried to get funding for the agency from fees it collects from companies — removing it from the appropriations process. But that effort failed.

Instead, the law gave the SEC the right to tap as much as $100 million a year, without congressional approval, from a reserve funded by industry fees.


Rep. Brad Sherman (D-Sherman Oaks), a member of the Financial Services Committee, said starving the SEC of money in the wake of a financial crisis it failed to stop would be like defunding a police department during a crime wave.

“Not even Al Capone ever argued that because his crime wave was successful, that the cops should be defunded,” Sherman said.

Garrett admitted that Congress can’t do much about the funding of the consumer bureau and some other agencies without passing legislation.

“Hopefully they’ll be making the right decisions … but if not, we will have very little to say about it,” he said.