Democrats’ push for a new consumer agency could derail an overhaul of the nation’s financial regulatory system, much like the debate over the public option stymied healthcare reform.
With the elections looming and the legislative clock ticking, some on the left and right believe that the White House will have to abandon its hope for a Consumer Financial Protection Agency (CFPA) if it wants to get a reform bill passed this year.
But his plan to create the CFPA, which would regulate everyday products like home loans and credit cards, has dominated the congressional debate.
The idea immediately sent financial lobbyists scurrying to Capitol Hill in opposition, consumer advocates rallying in support and Republicans lining up unanimously against the proposal.
Over the past year, all that heat and light has translated into simple gridlock in the Senate.
To both supporters and opponents of the CFPA proposal, the recent history of the “public option” overwhelming the healthcare reform debate is becoming a frequent point of comparison.
“There is a danger that the consumer protection agency could become a time-consuming distraction in the same way that the health reform debate was bogged down by issues that were not central to health reform,” said Anne Kim, economic program director at the centrist think tank Third Way. “You don’t want public option redux.”
The trench battle over the CFPA remains the single largest impediment to Congress sending the White House a bill to sign in 2010.
The House in December passed a broad package of financial regulations that included the new agency. But the Senate, lacking GOP votes, simply has been unable to strike a deal. Without one soon, Democrats know they will be staring at a much tougher landscape for passing financial regulations in 2011, when they will likely hold fewer seats in Congress and when Senate Banking Committee Chairman Chris Dodd (D-Conn.) retires.
A failure to pass financial overhaul legislation would come despite strong public support for new regulations on the industry. According to a new Pew poll, 59 percent of Americans support stricter regulations on financial companies, compared with 33 percent who are opposed.
Dodd and Sen. Bob CorkerBob CorkerSchumer puts GOP on notice over ObamaCare repeal Will Rubio vote for Tillerson? Senators wrestle with whether to back Tillerson MORE (R-Tenn.), a freshman senator, last week launched new bipartisan negotiations after a previous round on the panel hit an impasse. They are starting their talks on other issues in the regulatory debate, but they both know the consumer protection proposal is the central dilemma.
Like his fellow Republicans, Corker has dug in against the CFPA proposal.
“For Republicans, including me, a free-standing agency is a nonstarter,” Corker told The Hill soon after the negotiations began. “Obviously, consumer protection needs to be addressed, and addressed in a balanced way.”
Senators on the committee have discussed various ways of altering the proposal, including making it a division instead of a standalone agency.
But the two sides remain split on how much autonomy and rule-writing power the final entity should have, financial lobbyists said.
Meanwhile, consumer advocates have redoubled their lobbying in the Senate to pass a robust new agency. Elizabeth WarrenElizabeth WarrenSchumer: 'Very good chance' Price won't be confirmed Trump Treasury pick gets support from ex-mortgage assistance leader Dem senators to Trump: Don't tell consumer bureau chief 'you're fired' MORE, the Harvard Law professor and intellectual force behind the agency, published a recent op-ed in The Wall Street Journal to curry support. The Illinois, Iowa and Connecticut attorneys general recently pressed for the new agency. And House liberals are urging Dodd to support a strong independent body.
Stiffer regulation of financial products on the front end, supporters argue, would limit the risk in financial firms.
“It is a central core issue,” said Travis Plunkett, a leading advocate at the Consumer Federation of America. “It’s not the side issue.”
The comparison with the public option, Plunkett said, is “superficial” and purely “political.”
“The reason Sen. Dodd has dug in on this is because our system failed so badly to protect consumers. Apparently the Republicans feel just as strongly that the status quo is acceptable. They are carrying water for big banks and Wall Street,” Plunkett said.
The Obama administration has been firmly supportive of the CFPA proposal, contrasting to how it dealt with the public option in 2009. The White House spent the bulk of last year pushing a major overhaul of the healthcare system. But opponents quickly branded the Democratic effort a “government takeover,” with their message trained on the “public option.”
When Obama spoke to a joint session of Congress in September, he tried to deflect criticism of the public option.
“Its impact shouldn’t be exaggerated — by the left or the right or the media. It is only one part of my plan, and shouldn’t be used as a handy excuse for the usual Washington ideological battles,” Obama said.
There has been no indication that the White House is interested in dropping its support for a strong standalone CFPA or even of playing down its value in the debate. Obama said in the State of the Union that he would consider vetoing financial legislation that did not meet his tests for strong new regulations. However, the president did not spell out any litmus tests.
Sen. Judd Gregg (R-N.H.) said on CNBC last week that he believed Dodd and Sen. Richard Shelby (Ala.), the top Republican on the Banking Committee, had nearly reached an agreement on consumer protection issues.
“If the White House hadn’t sort of pulled back the Democratic membership on that issue, we could all go forward in a bipartisan way,” Gregg said
Financial lobbyists say the comparison with the public option is helping to galvanize opposition.
“While we want to see meaningful regulatory reform, the creation of a new bureaucratic government agency is not foremost in the public’s mind as a solution,” said Richard Hunt, president of the Consumer Bankers Association, a financial lobbying group.