By blocking its leader, GOP constrains new consumer bureau's reach

Republicans might have found a way to constrain the power of the new Consumer Financial Protection Bureau: make it an agency without a leader.

The increasingly bitter fight over whether Elizabeth Warren should head the new agency might have the happy side effect, from the GOP’s perspective, of limiting what the bureau can do.  

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Senate Republicans have vowed to hold up any nominee to lead the CFPB and say the blockade will not end until changes are made to curb the bureau’s authority. 

In response, liberals have renewed pressure on President Obama to bypass the Senate and recess appoint Warren as CFPB director. 

That scenario might not play out anytime soon. Senate Republicans forced three pro forma sessions of the chamber that prevent the president from making recess appointments while they are out of town next week, and they could repeat the tactic as the summer drags on.

"President Obama has been packing federal agencies with left-wing ideologues, but thankfully he won’t be able to for at least the next week," Sen. David Vitter (R-La.) said Thursday of the pro forma sessions.

The move changes the calculus surrounding the CFPB, but is not without precedent. Senate Majority Leader Harry Reid (D-Nev.) used pro forma sessions in 2007 to prevent President George W. Bush from making recess appointments.

The stalemate is significant because the CFPB is set to open its doors on July 21. If the date comes and goes and no director is in place, the CFPB will not be able to begin the regulatory work authorized by Dodd-Frank — including some of the initiatives highlighted by Warren as emblematic of the new bureau’s purpose. 

As the start date for the CFPB approached, a consensus emerged among financial lobbyists, consumer groups, and even lawmakers that its director would have to be named via a recess appointment. Given that a Senate confirmation for the controversial position would be prolonged, most expected the president to cut a corner and use a recess appointment to get a director in place before the launch day.

And if for no other reason than the lack of other candidates, most expected him to name Warren — the bureau’s architect and long-time champion — to the position.

"The idea at least had some momentum that the White House was going to nominate [Warren] via recess appointment," said Brian Gardner, the senior vice president of Washington research at Keefe, Bruyette and Woods.

But the Senate’s GOP latest maneuver — which can be repeated in future recesses — might have slammed the door on that notion, leading many to now wonder what a headless CFPB looks like.

If no director is in place by July 21, Treasury Secretary Timothy Geithner would become the de facto head of the CFPB, according to the Inspectors General of the Treasury and Federal Reserve. 

In a joint letter to lawmakers sent in January, the IGs laid out what exactly happens to the CFPB if a director is not named in time.

With no director, the CFPB would not be able to prohibit "unfair, deceptive, or abusive acts or practices" by financial institutions, nor will it be able to write rules or develop model disclosure forms that clearly lay out the terms of a consumer financial product. Warren has repeatedly said making financial documents easy to understand will be a top CFPB priority.

In addition, the CFPB would not be able to begin regulating nondepository institutions like payday lenders, which fall out of the reach of existing regulators.

The bureau would not be completely toothless. Director or no, it would be able to enforce existing regulatory powers on consumer financial products it receives from other regulators.

On July 21, the CFPB receives regulatory jurisdiction over consumer financial products from a slew of existing regulators — the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the National Credit Union Administration.

That means that the CFPB will have the power to write rules and issue orders tied to consumer financial laws that previously were the realm of those other regulators. And the bureau is not expected to simply maintain the status quo in those areas.

"One of the big complaints going into Dodd-Frank was that the existing banking regulators were ineffective in using the existing rules and regs, and so one of the things people are expecting is for CFPB to be more aggressive in what already exists," said Gardner.

The CFPB has always been a contentious issue in Congress, but the fight has heightened as the launch date has approached.

Warren, a longtime favorite of liberals, has seen a groundswell of support in the last several weeks from both liberal activists and congressional Democrats. Liberal groups are gathering signatures to letters calling for Warren to be named CFPB director in a recess appointment. 

Sen. Al Franken (D-Minn.) threw his support behind a letter-signing campaign run by the Progressive Change Campaign Committee, and 62 House Democrats have signed on to a letter asking the president to do the same.

The push to have Warren named via recess appointment kicked into high gear after 44 Republican senators announced they would block any nominee to head the bureau unless changes were made to curb its power. Warren backers argued the blockade gave the president no choice but to name her using his recess powers.

Even if a recess appointment is off the table, liberal activists want to see the effort to name Warren exhausted before moving on to another candidate, even if that means a lengthy confirmation fight.

"The activist base of Democrats and liberals would be enormously disappointed if she didn't get her shot," said Bob Borosage, co-founder of the liberal Campaign for America's Future, which is pushing for Warren as director of the CFPB.