The chief proponent of a proposed Consumer Financial Protection Agency is ramping up efforts to save the proposal as Senate Banking Committee Chairman Christopher Dodd, D-Conn., considers slashing its reach.
Harvard University law professor Elizabeth Warren said Tuesday wrapping the agency into part of another department such as Treasury would greatly diminish its effectiveness. The CFPA appears to be the biggest sticking point in moving an overhaul of the nation's financial regulatory system, the next major White House legislative priority after healthcare reform, and Dodd has broached the compromise in private talks with panel Republicans, according to sources.
Dodd is also heading to the White House Tuesday to discuss his bill with President Obama.
"This agency is not about creating new tools. The tools have been there all along. This is about getting a cop on the beat who cares about using them," said Warren, who first proposed the idea of such an agency three years ago. "Putting this agency under the thumb of regulators who have already demonstrated that in every consumer-bank dispute they side with the banks just won't work."
Like the healthcare debate over the public option, the battle over the CFPA is shaping up as a line in the sand for liberal activists, whose energy helped elect President Obama and voted healthy Democratic majorities into both chambers. They contend that the CFPA -- which would strip powers from banking regulators and have the power to write and enforce rules as well as examine institutions to ensure mortgages, credit cards and other products are not abusive - is needed after a financial crisis sparked by predatory and risky home loans.
But the banking industry, led by a U.S. Chamber of Commerce effort, has fought a multimillion-dollar campaign to kill it. Such pressure on moderate Democrats led House Financial Services Committee Chairman Barney Frank, D-Mass., to narrow the agency's scope to win passage of his financial regulatory bill in December. The House bill would provide national banks a limited pre-emption from state consumer laws and allow only examination and enforcement for the biggest banks and credit unions.
The struggle has been even tougher in the Senate, where Banking Committee ranking member Richard Shelby, R-Ala., has publicly nixed the idea.
Amid reports that Dodd might further water down the agency, Warren wrote to supporters Monday asking them to contact Senate Banking member offices and create "visible public support" for CFPA in the media.
Consumer activists hope by making the CFPA a high-profile fight, pitting the average consumer against politically unpopular big banks, they can change the tide of the debate, especially as the White House has stepped up its criticism of the banking industry by proposing $90 billion in new bank taxes in the fiscal 2011 budget.
"We always knew this was a David vs. Goliath fight, but I don't believe that Washington can or will let Wall Street act like nothing has changed," Warren wrote in her e-mail letter.
While Warren was especially concerned with keeping CFPA a stand-alone agency, she also cited other issues. She noted, for example, that smaller community banks would be harmed if the Senate granted national banks a blanket pre-emption over state consumer laws.
"Big banks want to be able to do business in every town across the country without obeying local laws. That gives them an enormous competitive advantage against community banks. It puts local citizens at risk," said Warren, who also serves as chairwoman of the Congressional Oversight Panel of the $700 billion Troubled Asset Relief Program.
She also criticized the move to restrict the CFPA to only a rule-writing capacity, calling such an entity "toothless," and said the House version was "a reasonable compromise."
"Any agency that writes rules should be on the ground enforcing them," she said.
While Dodd has to bring Shelby on board to smooth Senate passage, Warren's endorsement also would be key as well, especially for liberals who are still angered the White House gave up on the public option on health care.
Warren declined to say Tuesday whether she would oppose a bill if she could not live with the compromise.
"I'm enough of a lawyer to say, let's wait and see what we got," she said.