The new Consumer Financial Protection Bureau won't assume its powers until July, but efforts are under way to weaken the federal agency before it gets off the ground.
Republicans recently introduced several bills that would tamper with the bureau's funding, make it easier for its regulations to be overturned and even delay its launch. Three of them are expected to be taken up by the House Financial Services Committee this week.
And last week, 44 Republican Senators sent a letter to President Barack Obama saying they won't approve anyone he nominates to lead the agency unless it's restructured in a way that would reduce its power and independence.
"This is unprecedented," says Travis Plunkett, legislative director for the Consumer Federation of America. "They seem to be declaring war on the Consumer Bureau unless the president agrees to changes that would cripple its ability to help consumers."
For years, the role of consumer financial protection fell to a variety of federal regulators. But these regulators also were charged with overseeing monetary policy or the safety and soundness of banks, so consumer protection often got short shrift.
The Dodd-Frank financial reform law created the bureau to put consumers first, a huge victory for them. On July 21, federal regulators, including the Federal Reserve, the Office of Thrift Supervision and Office of the Comptroller of the Currency, will transfer their consumer protection responsibilities to the new agency. It will have the power to enforce consumer laws and regulate financial products and services, such as mortgages, credit cards and debt management.
The bureau is to be overseen by a director nominated by the president and confirmed by the Senate.
Obama hasn't nominated a director yet. Many consumers groups want the job to go to Harvard University law professor Elizabeth Warren, who came up with the idea of a consumer-focused agency. But industry groups oppose her, fearing she is too anti-business. To avoid a brutal confirmation battle, Obama named Warren as a special adviser last year.
But pressure is mounting for the president to name someone before July 21. Until a director is in place, the bureau's powers will be more constrained. It won't, for example, be able to oversee payday lenders.
Supporters of the bureau say it will have just as much oversight and accountability as any other federal banking regulator. But opponents fear it will be too powerful and will hurt businesses with overreaching regulations.
In their letter to the White House last week, the senators called for changes to the bureau's structure. For instance, they want the agency to be run by a board, not a single director. And they want the bureau's funding to come from Congress.
But the bureau was set up to prevent just this sort of outside meddling. Its annual funding comes from a share of the Fed's revenue, purposefully avoiding Congress.
In response to the senators' demands, White House spokeswoman Amy Brundage said in a statement: .
"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."
Even before this gang of 44 came up with their demands, several bills in Congress were seeking to curb the bureau's powers.
The U.S. Chamber of Commerce, which fought the creation of the bureau last year, supports this legislation.
"We're not trying to hurt the thing. We're trying to improve it," says Jess Sharp, executive director for the Chamber's Center for Capital Markets Competitiveness. "It's an attempt to get it right in the beginning."
One bill, for instance, would make it easier for other regulators to overturn the bureau's regulations. Another calls for delaying the July transfer of regulatory powers to the bureau until a director is in place.
"It's an invitation for the Senate Republicans to delay forever the confirmation of a CFPB director," warns the Consumer Federation's Plunkett.
A third bill would replace the director with a five-member commission, similar to what the senators want.
"Having a single person in charge of this much power is incredibly unusual," Sharp says.
He says the bureau can benefit from getting commissioners' different viewpoints. And it would have more leadership stability if it was run by members serving staggered terms, he says.
But having a single person head up a regulatory agency isn't unheard of. The OCC, which has regulated national banks since 1864, is led by one person — a comptroller.
Consumer advocates also fear that a commission would be slow to react to a financial world where products, services and schemes change so quickly.
"A commission may bog down that progress and have internal conflicts that will delay progress in terms of making rules," says Pamela Banks, senior policy counsel with the Consumers Union.
The legislation is unlikely to succeed, at least while Obama, a Democrat, holds the veto pen. But consumer advocates still worry that continued congressional attempts to restrain the bureau could end up intimidating the fledgling agency.
"You can create a political climate where the CFPB is afraid of its shadow" and reluctant to take on politically controversial legislation, Consumer Federation's Plunkett says.
It's unclear how the president will respond to the senators' threat.
Banks, of the Consumers Union, says they leave the president with little choice but to bypass the Senate.
"It almost forces your hand to do a recess appointment. The gauntlet has been thrown down," she says.
A director appointed during a congressional recess would serve until the end of next year. And that person could be Warren.
The irony is that Warren's priorities for the new bureau aren't as extreme as business groups fear. In fact, Plunkett says, some consumer advocates would like to see Warren go further than she has indicated.
Warren has said the bureau's goal is to make prices and risks more transparent to consumers. She wants to simplify mortgage documents and clarify credit card pricing so consumers can comparison shop. Really, not so scary. Even some business groups support these measures.
A regulatory agency whose sole concern is protecting consumers in their financial dealings is long overdue. And rather than spend this time trying to derail the people's agency, businesses and their supporters in Congress should give the bureau — and Warren —a chance to do their job. What they may find is that what's good for consumers is also good for them.