Nearly all Republican senators vowed to block any Obama administration nominee to head the new Consumer Financial Protection Bureau unless major changes are made to the agency’s structure.
The move threatens to hobble the powerful agency created last year to protect consumers in the financial marketplace as it prepares to begin operations in July. The bureau was the centerpiece of last year’s sweeping overhaul of financial regulations — legislation opposed by most Republicans and industry leaders.
President Obama still has not nominated a director, a five-year appointment that must be confirmed by the Senate. In all, 44 Republicans — enough to block confirmation — signed a letter about their demands and sent it to Obama on Thursday.
Among the changes, the Republicans want to replace the director position with a multi-member board, subject the bureau’s funding to annual congressional review and allow other financial regulators to block the agency’s actions more easily.
Administration officials, congressional Democrats and consumer advocates have said those changes would gut the bureau’s power.
They argued that a strong, independent agency was needed because banking regulators were more concerned about the health of financial firms than about consumer abuses, such as subprime mortgages, in the years leading up to the housing market crash.
“For far too long, American consumers have fallen victim to fraud, misleading claims and powerful special interests, and the president believes that American families who were the hardest hit by this financial crisis deserve an independent watchdog to protect consumers and prevent predatory lending and other abuses in the future,” White House spokeswoman Amy Brundage said.
Obama appointed Harvard Law professor Elizabeth Warren last year as an administration advisor to help set up the bureau. But he did not nominate the outspoken consumer advocate as director because of concerns that Senate Republicans would block her confirmation.
The president could circumvent Senate confirmation by making a so-called recess appointment when Congress is on break. But that person could only serve until the end of next year.
Warren, who originally proposed the idea of a consumer agency in 2007, could be that appointment now that Senate Republicans have vowed to block anyone, even a fellow Republican.
“The bureau, as currently structured, lacks any semblance of the checks and balances inherent in the Constitution,” said Sen. Richard C. Shelby (R-Ala.), who helped organize the letter. “Everyone supports consumer protection, but we should never entrust a single person with this much power and public money.”
Shelby said a recess appointment “would silence the people’s voice.”
Frank Keating, president of the American Bankers Assn., said he supported the move by the Republican senators. “These common-sense reforms strike the right balance and provide a critical check on the bureau’s broad authority,” he said.
One leading consumer advocate said the move by the Senate Republicans amounted to extortion.
“This is the biggest case of sour grapes I’ve ever seen in my life,” said Travis Plunkett, legislative director for the Consumer Federation of America. “This is a minority of the Senate attempting to extort legislative changes that they failed to get last year or they’ll try to assure the new bureau never opens its doors.”
Two of the senators who signed the letter — Susan Collins and Olympia J. Snowe, both of Maine — provided key votes to help pass the financial overhaul bill last year. Their offices did not respond to requests for comment.
A third Republican crucial to the bill’s passage, Scott Brown of Massachusetts, did not sign the letter. Sen. Lisa Murkowski (R-Alaska) was the only other Senate Republican who did not sign the letter. There is one Senate vacancy after former Sen. John Ensign (R-Nev.) stepped down Tuesday.
After taking control of the House in January, Republicans began pushing to weaken the consumer agency. A House Financial Services subcommittee voted along party lines Wednesday to approve three bills to change the agency’s structure.
The bills would replace the director with a bipartisan five-member commission, make it easier for other regulators to veto the agency’s actions and prevent it from exercising its new authority until a Senate-confirmed director is in place. But those bills are likely to be blocked by the Democratic majority in the Senate, and probably would be vetoed by Obama even if they did pass.
Like other banking regulators, the new consumer agency is not funded through congressional appropriations. The agency will receive its money directly from the Federal Reserve, where it will be housed. But the Fed will have no control over the agency.
The White House and congressional supporters of the agency set up the independent funding to prevent it from being starved of money, as has happened in the past with other regulators.
Under the law, Treasury Secretary Timothy F. Geithner heads the consumer agency until a director is confirmed. He has delegated that authority to Warren, a special advisor to the White House and the Treasury Department who has been hiring staff and readying the bureau for operation.
A Warren spokeswoman had no comment on Thursday’s letter. But Warren spoke out this week against the changes being considered by House Republicans.
“Many in Congress have made clear their intention to defund, delay and defang the consumer agency before it can help one family,” she said.
“These bills are about preventing the CFPB from operating effectively — a dangerous game to play in light of recent lessons in the marketplace and how quickly financial threats to consumers emerge,” she said.