And not only did bank regulators fail to block that damage, they actually enabled it. When states passed statutes to stop predatory lending, an obscure federal banking agency, the Office of the Comptroller of the Currency (OCC), declared them invalid as to federal banks. Similarly, when the New York state attorney general probed national banks' lending practices, the OCC went to court to block him, in a case it ultimately lost before the Supreme Court.
Why was the OCC so protective of the banks? Perhaps because since 2005 it has been led by a former bank lawyer.
Given the effect input from financial institutions has had on consumer protection and the economy recently, it would behoove lenders to refrain from opposing obviously qualified candidates to lead the CFPB, like Elizabeth Warren (disclosure: Elizabeth Warren's co-worker has helped place some of my op-eds, though not this one; I have never met Professor Warren, but we have corresponded via e-mail; once she asked me to co-author a reply to someone else's op-ed). But financial institutions need not worry about an overly aggressive CFPB no matter who leads it. The statute creating the CFPB provides that CFPB decisions impairing bank safety and soundness can be overturned by a council of officials. True, such vetoes require a two-thirds vote, but as the council includes many bank regulators, including the OCC's head, two-thirds votes may not be hard to get. The legislation also preserved the OCC's power to preempt state laws as to national banks.
So what should the president look for in the first CFPB director? Certainly someone willing to stand up to financial institutions. Had we had a CFPB willing to prevent banks from making the loans that devastated the economy earlier, the economy would be in far better shape today.
But the president should not nominate someone who reflexively opposes banks without considering whether particular rules will aid consumers. We already have too many consumer protection laws that fail consumers, like the rules that required subprime lenders to give borrowers the wrong monthly payment figures for their loans (not that it mattered much, since the same rules did not oblige the lenders to provide the figures until so late in the process that borrowers didn't use them). The new CFPB director should make judgments rooted in empirical research showing that its actions will help consumers.
Not by coincidence, those traits describe Elizabeth Warren. One of the many things she is known for is the empirical research which inspires her positions.
Elizabeth Warren is surely not the only person who could ably lead the CFPB. But she is the only one who thought sufficiently hard about the problems consumers encounter to have come up with the idea for the CFPB, and talented and persistent enough to make it a reality. She should not be penalized for that. Nor should the consumers whom the CFPB should protect.
Even after the new statute takes effect, the banks will have the OCC to protect them. Consumers need a regulator to protect them too. Elizabeth Warren would be an excellent choice.
Jeff Sovern is a professor at St. John’s University School of Law and co-coordinator of the Consumer Law and Policy Blog.