What Happens if the Consumer Financial Protection Bureau Has No Director By Its Start Date?

A useful article in CNN Money (hat tip SA) describes what happens if the Consumer Financial Protection Bureau does not have a director in place by its official start-up date, July 21. That outcome looks certain, given that the House Oversight Committee has scheduled its ritual flogging of its defacto head, Elizabeth Warren, for July 14, and Senate Republicans have vowed to nix any candidate lest they get to strangle the agency by controlling its budget.

Even if Obama were to have a brain transplant and do something so out of character as to get in a fight with banks and the Republicans, the logical window of opportunity for breaking the Senate’s planned pro-forma sessions (a device to forestall a recess appointment) would be the four week end of summer Congressional break. That starts August 8. So it looks like a sure bet that the CFPB will go past July 21 with no chief in place.

Contrary to popular opinion (and bank lobbyist fond hopes) the CFPB is not stymied if a director has not been installed. What would happen is:

1. The CFPB does not get moved to the Fed. It stays in the Treasury under Geithner.

2. The CFPB cannot act on new regulatory powers created by Dodd Frank, but it can act in one of its planned and still large roles, that of the overseer of existing consumer financial regulation which is now scattered among many agencies. Those powers are transferred to the CFPB as of July 21.

So Warren could continue in her current role as minister without portfolio effective leader of the agency if Geithner were to hand off that task to her. Expect a major outbreak of Banker Derangement Syndrome if that occurs.

The CNN story outlines some of the things that the CFPB can do as of July 21:

* Send bank examiners in to inspect the books of the largest banks with more than $10 billion in assets, which account for 65% of all mortgages.

* Ensure that the biggest banks are abiding by credit card laws that require more disclosure and crack down on fees. They can also craft new rules aimed at stopping banks that try to get around the credit card laws.

* Ensure that consumers denied bank loans based on a bad credit scores, get to see a copy of their credit scores for free.

* Finish crafting rules that ban banks and other lenders from making mortgages without verifying income, an effort end the practice of liar loans.

* Create new rules under existing consumer laws. For example, the bureau would have the power to crack down on the kinds of fees banks charge customers who overdraw their checking accounts, although that’s not top of the list right now.

The sticking point is that the agency cannot take up new powers created by Dodd Frank, such as regulating non-banks that engage in consumer financial services activities, such as payday lenders and mortgage brokers, or banning financial products because they are abusive or deceptive

The American Bankers Association and Republicans dispute the Treasury’s interpretation of Dodd Frank and argue that the agency should do nothing until it has a director installed. The ABA is huffing and puffing and saying that the any effort by the CFPB to enforce existing rules will be challenged in court. Really? Exactly what damages could a bank claim? That it was being hurt by being required to obey the law? That its captured former regulator had left it alone? I don’t think anyone with an operating brain cell would want to open themselves up to discovery on that one.

The threat from the Republicans is to move a bill forward that would delay the transfer of powers from existing bank regulators to the CFPB if there were no designated head. I suspect whether this bill would have a snowball’s chance in hell of passing depends on the outcome of the July 14 Warren slugfest. Given the considerable backlash against her chief torturer last month, Patrick McHenry, the Democrats in the Senate might not be keen to defect and vote against Warren if the bill were to get through the House.

But the reason for the ferocious opposition by banks to Warren and the CFPB generally is becoming more obvious. The banks don’t want to have to obey existing law. Forget even about new laws. The enforcement of very basic pro consumer laws like the Truth in Lending Act, the Home Owners Equity Protection Act, and the Real Estate Settlement Procedures Act has been so limited that the idea that the banks might be required to behave has them up in arms. It does not take all that many people who have some expertise and are in a financial position where they can engage in old fashioned behavior like public service to make a difference if they have the right charter. Creating a non-captured regulator is a precedent the banks want to avoid at all costs.

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  1. attempter

    The same thing as would happen if Warren or anyone else were installed: Nothing.

    (Actually, if Obama had the political brains to install Warren, that would accomplish the dual goal of giving them more control over her and locking her in a box, while at the same time being a sop he could throw to the gullible “progressive” base. So it would make that difference.

    The fact that he doesn’t make that move is a good example of his political incompetence, which exists although it’s a feature secondary to his criminal malevolence.)

    1. Tao Jonesing

      Does anybody even remember any more what the CFPB is actually empowered to do? Or is it now just another empty symbol of reform that “progressives” will fight for and, if they “win,” convince themselves they’ve actually achieved something.

      Bush’s “No Child Left Behind” Act was designed to leave children behind. Given the dominance of neoliberal doublespeak on both sides of the aisle, I wonder the Consumer Financial Protection Bureau was actually designed to do?

      At this point, the only thing the CFPB seems to be is a giant distraction. There’s so much effort being put into this staged fight that all the “progressives” have forgotten about real reforms to make real progress. After all, isn’t what we really need a Criminal Finance Punishment Bureau? How isn’t this namby-pamby version of the CFPB anything other than an enabler of business as usual on Wall Street?

      1. useless eater

        Bingo. And you might ask what Yves is doing running articles on it and Warren every other day when it doesn’t have a snowball’s chance in hell of ever materializing or doing anything once it does. Then again, you might not.

        Of course it’s a distraction. How will the transition to neo-feudalism be accomplished without stealing everyone’s savings?

      2. attempter

        Yup, it’s just more misdirection, more dragging out of the agony, and more diversion for those who choose to view politics as entertainment rather than the struggle to the death it now is.

        As for the Warren cult itself, I can only chalk it up to the fact that “progressives” are system elitists and are therefore desperate to find some Bailout-supporting insider-elite figure they can cling to in order to still believe in the existing system.

        I’ve always been serious when I say I’d rather see Bernie Madoff appointed head of the CFPB. That would have so much more clarity, would be so much more educational, and be otherwise indifferent as to the result.

    2. Myles

      Given Elizabeth Warren’s considerable office-politics talents at out-maneuvering the Obama/Geithner team, I think the smart thing for them is to just not play this set anymore. So far as they’ve played with Warren, they’ve lost control of the plot completely.

      Right now they are actually in a horrible quandary: if they appoint Warren, she gets more publicity and power. Which is terrible. If they kick her, she gets the groundswell of populist idiocy to back her up in the Massachusetts Senate run, which would be a disaster of apocalyptic proportions, as once she gets in as the Democratic candidate and wins the seat she would be able to retain it forever. Oh, and for the additional delicious twist: if she manages to gather more popularity and support while being CFPB head, she will have a massive aggrieved following for an eventual Mass. Senate run anyways, were she to be eventually removed for overstepping her rôle and pushing the envelope, as she inevitably will. And even if she’s not fired (i.e. not renewed), she can still run for Senate from Mass.

      Obama has right f*cked himself on this one. I would say that the optimal strategy right now is to just let Republicans hammer and chip away at her, while dampening the sound and fury coming from this, until everyone gets bored of the whole fracas and her following drifts away.

    3. Myles

      The problem here is that Warren has leverage against the Administration insofar as she is a viable Senate candidate (this is the stuff of nightmares), and her leverage increases proportionally with her viability, so the Administration’s first task would be to diminish her viability as Senate candidate (thus her credibility as a public figure).

      Dragging their feet and exposing Warren to flak from the Republicans while maintaining a purposefully neutral stance is probably the best way of doing this.

      1. Francois T

        “Dragging their feet and exposing Warren to flak from the Republicans while maintaining a purposefully neutral stance is probably the best way of doing this.”

        Or the worst way of doing this. Every time anyone has tried to take her down, her stature has grown among the public at large.

        All the administration is succeeding in dithering ad nauseam like they do now is to prove they’d rather, as Barry Ritholz put it so colorfully, “wrapping [their] lips around that purple phallus spurting campaign contributions, whoring out the electorate so [they] can reap the benefits of your elected positions.”

        Of course, the Obamabots are counting on the scare tactic of “but Republicans would be much worse” to force the disaffected troops to vote for their man anyway.

        I, for one, refuse to yield to this blackmailing anymore.

  2. aletheia33

    “Senate Republicans have vowed to nix any candidate lest they get to strangle the agency by controlling its budget”

    “lest” = “unless”?

    1. ambrit

      Classic example of a Freudian Slip. (Sort of like the ones Bob Livingston is said to have preferred when he’d weekend down in the quarter.)

  3. Peripheral Visionary

    I think the President’s course on this is fairly straightforward: appoint whomever is best suited for the position; if that is Warren, then if/when she is voted down, appoint the next-best suited candidate, etc.

    A couple of things bother me here. Yes, the Republican resistance to Warren is not entirely rational–she does not appear to have any agenda other than running the agency for the purpose for which it was intended. But so, too, is the insistence that nobody but Warren will do for the position. As a general rule, no position in government should be created with only one person in mind–if it is a useful function, then there will be any number of qualified people who could potentially fill it. The Warren-or-nobody position would be a mistake; as the position is one that needs to be filled, I am confident the administration could find somebody other than Warren to fill it if Congress does not approve her.

    1. readerOfTeaLeaves

      Theoretically, your statement makes sense.
      In this particular instance, the following factors are in play:

      — Elizabeth Warren conducted original research into the area of consumer finance and it’s larger, social effects.

      — Elizabeth Warren conceived of the agency while a law professor in a highly competitive situation (Harvard Law), merging teaching with research. (She appears to be an innate teacher, which is part of why she is so good as a witness, a talk show guest, and an agency spokesperson.)

      — After conducting original research and conceiving of the agency, Elizabeth Warren turned in what appears to be a stellar performance setting it up.

      — In contrast, her Browbeater In Chief (Cong. McHenry, NC) is someone who:
      —- curries favor with the banksters (esp Wells Fargo)
      —- was steeped in the College Republicans world of political dark arts, a la Karl Rove, Jack Abramoff, etc…
      —- appears to have switched his committee’s schedule *multiple times* before the last hearing **in order to set her up to APPEAR to be ‘uncooperative’, or ‘not forthcoming’ to Congress**.
      ——– This has the look of setting her up in order to fit a bankster-created premeditated narrative that was deliberately devised in order to claim that Warren is not willing to bow to Congressional oversight (i.e., “She won’t make time to come to our hearings — how can we trust her agency, unless we can gut and control it’s budget?! She’s untrustworthy!”)
      ——– Note that this kind of scheduling mixup, with McHenry sending out press releases after the hearing that are forms of political chest-beating designed to suggest that Warren is uncooperative are right out of the bag of tricks that someone like Rove or Abramoff would pull. In other words, set up the genuine public servant to **appear to be** dishonorable; this is a classic Rovian play.
      ——– In addition, McHenry went on CNBC *before the hearing* to claim that Warren had ‘lied’ to Congress, which any rational, sane person could see in five minutes was a brazen lie. (Hat tip Steve, who left an NC link to that video clip.)

      Now, in a theoretical world, many people could fill that CFPB role.
      But in this world, where someone who is a genuine public servant has been deliberately set up to be smeared, insulted, and demeaned, you don’t let the people who pull that kind of sh*t get away with this nonsense.

      Even if Warren couldn’t stand the idea of taking that job, in this world a tough leader (if Obama proved to be one) would say, “Liz, for the sake of all the other voters, public employees, and lobbyists watching this drama play out, you are going to have to take that job for at least a year. Then you can go do whatever you want, but for at least the first year, please tough it out.”

      Because the banks and the GOP in Congress have basically thrown down the gauntlet to Obama, and jeering in his face: “Hey, wussy – we aren’t going to let you have something you need politically, a win for consumers. Neener! Neener!”

      No doubt plenty of backroom, backdoor politicos are saying ‘Raj Date is a great guy, he’ll do fine, and as long as we get Date we’ll write checks for 2012.’

      The thing that the banksters have done that, to my eyes, is both predictably stupid, as well as collassally clumsy, is backed Obama into a corner here.

      If he picks anyone OTHER THAN Warren, he looks like a political wussy.

      That’s what this is about at this point.

      I must say, as a political junkie, I’m thoroughly enjoying watching the banks and their inept toadies like McHenry scramble around.

      Personally, I hope that Elizabeth Warren has the time of her life on July 14th; all she has to do is look rational, smart, and be reasonable. Which clearly, is what the banks are afraid of.

      Meanwhile, how many others are – like myself – moving ALL of our money out of banks? I spoke with one of my financial advisors this week, and he’s hearing that other clients are also shutting down credit cards, closing out bank accounts. So I’m not the only one moving money out of a big bank, and that may be part of the invisible background that would help explain why the banks are in such a heated panic over the Warren appointment. They have completely screwed their own business model by screwing their customers.

      The Warren Standard in transparent consumer contracts is either going to be offered through the CFPB and government might still be relevant, or else it’s going to go Open Source.

      The banks, like aged generals, are fighting the last war.
      They’ve already lost, but they’re sure throwing money at it.

      1. reslez

        I must say, as a political junkie, I’m thoroughly enjoying watching the banks and their inept toadies like McHenry scramble around.

        About as refreshing as watching an arsonist torch an orphanage, but to each his own.

        I can confirm many people disgusted with the banks and their antics and are taking direct action as a result. I regularly advise family members to switch to local credit unions and stay out of the financial market. Of course given the vast amount of funny money floating around one wonders if the industry would even notice.

  4. ep3

    sounds like obama is intentionally not appointing someone so that the agency lacks guts. then his buddy geithner can control it and keep it from being too aggressive (warren de facto head still working under the thumb of timmy).
    plus i think he’s playing both sides of the fence. by supporting the agency, he is making consumer rights groups happy. but by not pushing for the agency, he can avoid being attacked (and have cuts in campaign cash) as not bank friendly. if the agency is a success, then he can claim to be a hero. if it fails, he can mitigate blame for supporting it.

  5. Hugh

    My understanding was that the CFPB’s mission was primarily education and that it would conduct research in areas related to consumer finance. One of the big areas of consumer finance it would not cover was car loans. Another big feature that got eliminated was that the CFPB was to have the power to require that banks provide consumers with plain vanilla alternatives on loans and mortgages.

    The CFPB site says, however, that it will also be involved in enforcement:

    “Conduct rule-making, supervision, and enforcement for Federal consumer financial protection laws”


    “Enforce laws that outlaw discrimination and other unfair treatment in consumer finance”

    Now my question naturally is what enforcement powers will the CFPB have? The FDIC can go in and seize a bank. The SEC can initiate civil suits against financial institutions and individuals. The Fed can also binding orders against financial players. What specifically are the CFPB’s enforcement powers? Firmly worded letters? Possible referrals to a Justice Department run by a corporate lawyer who could care less? I mean does it even have subpoena powers?

  6. ScottS

    Republicans are confused. They think it’s the Corporation for Public Broadcasting (CFPB), and are attacking it reflexively out of their alleged hate of public broadcasting. The Consumer Financial Protection Bureau (also CFPB) just needs a new name, and Republicans will leave it alone.

    Since, as Tao pointed out, every agency and initiative does the exact opposite of what it’s named, we should call it the Big Banker Bonus Enhancement Bureau and watch that puppy sail through Congress.

  7. MyLessThanPrimeBeef

    In my world,

    Taxpayers >>> consumers.

    I would therefore like a Taxpayer Protection Agency…in addition to a Victims of Taxation Musuem.

    Fantasizing again, I suppose. Madness on my part.

    1. ScottS

      I prefer “citizen” to taxpayer, but your point is well-taken. It is the people who actually pay their taxes who are getting robbed by the generationaly wealthy.

  8. Paul Tioxon

    Obvious is in the eye of the beholder. Compare the republicans and the obamacistas. Principled outrage at the mere impudence of a growing federal bureaucracy, especially one housed in the Fed. The long standing principles of anti-big-Gov’mint Rs, even more pronounced and no longer even slightly nuanced. They are beating the living crap out of Liz Warren, as if she just spit in Rush Limbaughs face while defecating on a picture of Grover Norquist. Well, by implication, she DID, by pushing a totalitarian set of reg-u-la-shuns out a bastard agency with no proper parent in charge as director. So, hysteria continues on the part of the republicans, as they destroy unions, limit abortions, deny unemployed benefits, attack workers in America who are not designated citizens, demand photo ID to vote in elections for those of us that are still considered legally American Citizens, and fight a Tong War against this agency.

    Let’s compare this hysterical call to arms against the Big Gov-mint Dooms Day Scenario with the kinder, gentler Jeremiad of Yves Smith, who couldn’t see a useful political act on the part of Obama even if he shovels his way through the dumptruck piles of cash from the banksters who own him into the coffers of the SPCA. The CFPB is operational, and it looks like it is operating in a work around basis simply because of organized political opposition to it existing in name only, much less operating at all. Liz Warren, with or with out the true love of a soul mate from Obama and Geithner, has gone from concept to actualization. And even if she operates in a work around fashion due to R obstructionist, guerrilla tactics, she will produce changes in the behavior of banks and other financial sector actors, including mortgage brokers, who are being reined in via other agencies by finally being included in a national data base, as are SEC brokers. No skipping state and setting up in new town with record of your crimes from the past. Just as entrepreneurs have to figure out how to over come within or without the rulebooks spelling it precisely out, so too is Liz operating the federal oversight of the financial sector, inch by inch, day by day, more and more. And truthfully, 10 years from now, she won’t be there. Anyone could, and just like the Bush administration dismantled so much reg-u-la-shuns, it can happen again. No matter what fine ideas leap full born from the brains of very smart people, their plans all go into the fog from the hell that is other people. The Darwinian selective process of political reform is as much a crapshoot as everything else that life has to offer. Somethings just survive and grow, maybe because the natural predators die off, maybe a new set of behaviors fools them, but the right environment randomly comes together to allow for change. Enough change to be make a difference. In a world of cynicism masquerading as sage comprehension of the inevitable way of all flesh, sometimes there is a real political victory that means something to the democratic base, in other words, to most of the people most of the time. And its name is CFPB. Deal with it.

  9. Lyle

    If their mission is education just prepare some public service announcements saying that the financial services industry is populated by used car salesperson wannabes. Add that you should trust no one in the financial services industry any more than you would trust the stereotypical used car salesperson. Tell people to ask who pays the person on the other side, and if its commission who pays it? Be specific in saying what you want. One thing that occured during the crisis runup was cold phone calls selling people on a mortgage, tell people to say no thank you and hang up on anyone call to sell them something.
    Essentially everyone is out to get you and you need to act accordingly.

  10. Francois T

    “Even if Obama were to have a brain transplant”

    Pfff! That is the easy part!

    The trouble here is to get a character transplant. That is several orders of magnitude more difficult.

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