Proponents of an independent financial consumer protection agency have complained that new legislation unveiled Monday by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) would weaken consumer protection by putting the agency inside the Federal Reserve. Nevertheless, the breadth of the proposed agency's powers would be unprecedented.
Indeed, Harvard law professor Elizabeth Warren, who came up the idea, commended Dodd for his proposal, while the U.S. Chamber of Commerce held a press conference Tuesday to warn that it would be a threat to credit for small business.
"Despite the banks' ferocious lobbying for business as usual, Chairman Dodd took an important step today by advancing new laws to prevent the next crisis," said Warren, chair of the Congressional Oversight Panel, in a release issued Monday when Dodd released his Restoring American Financial Stability Act. While Warren wants to see enforcement powers of the proposed Consumer Financial Protection Bureau (CFPB) strengthened, she generally approves of it.
Susan Weinstock, Consumer Federation of America's financial reform campaign director, calls the proposal "a good first step. The independent part was really important to us. It looks to be independent."
A $3 Million Campaign to Thwart the Plan
However, Mercer Bullard, associate professor of law at the University of Mississippi School of Law and founder of a mutual fund shareholder advocacy group called Fund Democracy, doesn't believe the new agency would be independent of the Fed. "The primary need here is to get consumer protection out of the hands of banking regulators," which failed to protect consumers, he says. "This does not do that."
The Chamber of Commerce is putting its money where its complaint is: It has begun a new $3 million campaign -- in addition to the $3 million it has already spent on its financial service reform effort -- to get Congress to rein in the proposal. With the Banking Committee scheduled to begin marking up the legislation Monday afternoon, the chamber is targeting six states: Tennessee, Arkansas, Montana, South Dakota, Indiana and Virginia. All except Arkansas have senators who are members of the Banking Committee.
While some critics contend the CFPB wouldn't be independent enough. David Hirschmann, president and chief executive officer of the chamber's Center for Capital Markets, says it would be "overly broad, ill-defined [and] independent." That, he says, "adds, rather than removes, bureaucratic layers and duplication."
Given the range of reactions Dodd's version of the CFPB has already generated, it's clear that -- much like the bigger financial overhaul bill the CFPB is part of -- the provision faces anything but smooth sailing