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Wednesday, May 18, 2011

Congress may defang consumer agency before first bite

GOP opponents press to restrain new watchdog set up after meltdown



Image: Elizabeth Warren at the Reuters finance summit in Washington
KEVIN LAMARQUE  /  Reuters
Consumer Financial Protection Bureau Advisor Elizabeth Warren, who has been a tireless critic of the powerful financial services industry.
By John W. SchoenSenior producer
msnbc.com
updated 5/18/2011
3:05:45 PM ET





Almost a year after Congress created a new federal agency to protect consumers from shady lending practices, there is a move afoot on Capitol Hill to clip its wings before it takes flight.

The Consumer Financial Protection Bureau was one of the most contentious provisions of the sweeping Dodd-Frank financial reform bill enacted in 2010. That 2,000-page legislation was designed to fix many of the regulatory loopholes that allowed big banks to take on too much risk. The aim was to prevent another financial collapse like the Panic of 2008 that produced a massive government bailout, sent the housing market into a tailspin and plunged the economy into a deep recession.

On Wednesday, the CFPB put its toe in the turbulent waters of regulating mortgage loan disclosures, one of the most common consumer credit complaints during the housing boom. The "Know Before You Owe" project will test two prototype forms designed to clearly spell out loan terms when a borrower applies for a mortgage. Over the next few months, the CFPB will test the new forms with consumers, lenders and mortgage brokers and take comments on its website.

"With a clear, simple form, consumers can better answer two basic questions: 'Can I afford this mortgage, and can I get a better deal somewhere else?'" Elizabeth Warren, the White House's special adviser in charge of setting up the CFPB, told reporters.

When it officially opens for business in July, the new, independent consumer lending watchdog will consolidate regulatory powers now housed in seven different federal agencies with a mandate to protect individuals from abusive lending practices by the financial services industry.

Much of the criticism of the CFPB has been aimed at the appointment of Warren, a Harvard law professor who has been a tireless critic of the financial services industry — one of the most powerful lobbies in Washington.

To avoid a battle in the Senate to confirm her as the agency's new director, President Barack Obama appointed her in September as a special assistant to Treasury Secretary Tim Geithner. In that role, she is in charge of staffing up the new bureau, putting systems and procedures in place, creating new rules and developing ways to tighten enforcement of existing rules against predatory lending.

With just two months to go before the law officially grants the agency those powers, Congress is considering measures that supporters of the new agency say would substantially weaken it before it writes its first new rule.

Last week, the House Financial Services Committee passed three bills to tighten the reins on the agency. One would create a new bipartisan commission to oversee it. A second would make it easier for other regulators to veto any new rules written by the CFPB. And a third would give it independent status only if its director is confirmed by the Senate, where Republicans are also demanding changes in oversight of the agency

"No person should have the unfettered authority presently granted to the director of the Consumer Financial Protection Bureau," forty-four GOP senators wrote to Obama earlier this month. "Therefore we believe that the Senate should not consider any nominee to be CFPB director until the CFPB is properly reformed."


Senate Republicans also are pressing for a commission to oversee the agency, along with congressional approval of its budget and greater veto power by banking regulators over any CFPB decisions.

Warren declined a request for an interview. But in a statement, she said the moves are designed to "defund, delay and defang the consumer agency before it can help one family."

"These bills are about preventing the CFPB from operating effectively — a dangerous game to play in light of recent lessons in the marketplace and how quickly financial threats to consumers emerge,” she said.

In the months since her appointment, Warren has been setting up the bureau's organizational structure, hiring a staff of about 200 that includes veteran regulators and lending industry experts and reviewing existing regulations and proposals for new ones. She's also been on something of a charm offensive, meeting with bankers, business leaders and members of Congress.

"Everyone seems to report back the same thing: She's a very engaging and engaged person," said Jess Sharp, executive director of the U.S. Chamber of Commerce's Center for Capital Markets.

But as the July 21 deadline approaches for naming a director, the battle over the agency's oversight and Warren's appointment threatens to delay the bureau's start-up. Until a director is officially named, some 18 statutes covering various forms of consumer lending will remain housed in the seven regulatory agencies that currently oversee everything from mortgages to student loans.

"We don’t have a moment to waste on these issues," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition. "Consumers are having difficulty accessing credit around the country today. We need simplicity accessing mortgage credit for consumers. And we need to insure they're sustainable and appropriately underwritten."

Senate Republicans have enough votes to block any nominee to head the agency. One option would be for the White House to appoint a temporary director when Congress in in recess — without Senate approval. Alabama's Richard Shelby, the ranking Republican on the Senate Banking Committee, has already warned that such a move would "silence the people's voice."

Though the CFPB will oversee financial products that are most familiar to consumers — from credit cards to mortgages to payday loans — it is just one piece of the much larger financial Dodd-Frank reform package. Hailed at the time as the biggest overhaul in financial regulation since the New Deal, the law left it to existing regulators to write the details of hundreds of new rules called for in the package.

Proponents of the CFPB's independence have argued that those regulators didn't need Dodd-Frank to prevent the excesses that led to the mortgage lending spree that helped produce the financial crisis.

"Over the past three years all of these regulators have realized they need to intervene — the Federal Reserve, the Office of the Controller of the Currency — all are taking a more active role," said Berenbaum. "But where were they over the past decade, when many institutions, both consumer and trade institutions, were warning about issues of safety and soundness?"

By leaving the details of the rulemaking process to those same regulators, Dodd-Frank sidestepped some of the most contentious battles over where and how to rein in big banks. Some observers think the battle over the CFPB is just the tip of a larger political battle yet to be fought over that wider effort at financial regulatory reform.

"The consumer piece is all tangled up in politics," said Cornelius Hurley, a professor of banking law at Boston University. "The systemic risk piece is all tangled up in their inability to get their minds around what a 'systemically significant enterprise' is. And you have the Republicans trying to repeal large chunks of it and browbeat the regulators in to slow-walking large chunks of it backwards. It's a mess."

President shifts Mideast message


By: Josh Gerstein
May 18, 2011 04:28 AM EDT
Two years ago, when President Barack Obama spoke to the Muslim world in Cairo, he devoted 12 paragraphs totaling more than 1,000 words to the Palestinian-Israeli conflict. Promoting democracy in Muslim countries mustered a mere three paragraphs totaling 375 words.
When Obama delivers an address at the State Department on Thursday that many are billing as “Cairo II,” his text is expected to reflect how much the Mideast has changed. The urgent need for democratic change in the Arab world will stand front and center, while the foundering peace process recedes in prominence, White House officials signaled. The president and his aides are eager to capitalize on the burgeoning Arab Spring pro-democracy movement and the killing of Osama bin Laden as promising opportunities to wrest young Muslims from the path of radicalism.
Throughout Obama’s campaign and well into his first year in office, one foreign policy premise became a mantra: Resolving the Israeli-Palestinian conflict was critical, if not essential, to achieving U.S. goals throughout the Middle East and around the world. That premise is now increasingly in doubt with the peace process at a standstill. The president’s peace envoy, former Senate Majority Leader George Mitchell (D-Maine), announced his resignation last week. And U.S. officials are profoundly concerned about recent moves by the Palestinian leadership.
Still, Obama insisted Tuesday the time is ripe to resolve the Arab-Israeli standoff.
“Despite the many changes, or perhaps because of the many changes that are taking place in the region, it’s more vital than ever that both Israelis and Palestinians find a way to get back to the table,” Obama said during an Oval Office visit with Jordan’s King Abdullah II. “The United States has an enormous stake in this.”
Even some of the president’s closest foreign policy allies concede there is little, if anything, to show for the administration’s intense early efforts to broker peace. Democracy, though, is sprouting across the region, raising the hopes of average citizens while jarring U.S. allies and enemies alike.
“It’s an awkward speech and an awkward time for a speech because there doesn’t seem to be a game plan in place,” Steve Clemons of the New America Foundation said of the Israeli-Palestinian conflict.
Obama signaled even before he took office that he viewed the Arab-Israeli conflict as a national security imperative.
He described it to The Atlantic in 2008 as a “constant sore” that “does infect all of our foreign policy.” It “provides an excuse for anti-American militant jihadists to engage in inexcusable actions,” he said, “and so we have a national security interest in solving this.”
Despite the looming danger of a nuclear Iran and tens of thousands of U.S. troops mired in a decade-long morass in Afghanistan, former National Security Adviser Jim Jones declared early on that solving the Israeli-Palestinian conflict would help wind down an array of U.S. troubles abroad. “This is the epicenter,” Jones told the liberal Jewish group J Street in October 2009.
Obama implicitly criticized prior presidents, such as Bill Clinton and George W. Bush, for waiting too long to strive for peace. “Even in the midst of the worst financial crisis since the Great Depression, we started dealing with this issue on Day One,” he boasted in August 2009.
He tried to jump-start peace talks by pressuring Israeli Prime Minister Benjamin Netanyahu to impose an indefinite freeze on settlements in the West Bank. Now, even Obama’s supporters say that approach was a failure.
“I was opposed to the prolonged effort on the settlements in a public way because I never thought it would work, and, in fact, we have wasted a year and a half on something that, for a number of reasons, was not achievable,” Senate Foreign Relations Committee Chairman John Kerry (D-Mass.) said last month in little-noticed comments to the U.S.-Islamic World Forum in Washington. 

Jones, who stepped down last October, acknowledged Monday that the peace process is stymied. 

“The inability to make even the smallest progress is hurtful to both sides and perpetuates an issue that affects not only the region but a large part of the world,” Jones told reporters at the National Press Club. 

Former Mideast peace negotiator Aaron David Miller said Obama “pushed louder, faster and harder on the Palestinian issue than any other American president,” but “the reality is that [the administration] has failed to find an effective strategy.” 

Palestinian National Authority President Mahmoud Abbas said the administration urged him to focus on Israeli settlements — then abandoned him. 

“It was Obama who suggested a full settlement freeze,” Abbas told Newsweek last month. “I said, ‘OK, I accept.’ We both went up the tree. After that, he came down with a ladder, and he removed the ladder, and said to me, ‘Jump.’ Three times he did it.” 

Frustrated with the failed U.S. efforts, Abbas turned his attention elsewhere. Last month, he agreed to a power-sharing deal between his faction, Fatah, which controls the West Bank, and rivals in Hamas who hold power in Gaza. The deal seems like a snub to Israel and the U.S., both of which have refused to negotiate with Hamas because it uses terrorism to advance a stated goal of wiping out Israel. 

The pact has caused much confusion about whether Hamas is easing its hostility toward the Jewish state or whether Fatah is moving toward greater militancy. Even some Palestinian-American activists say the time is not right for Obama to launch any major peace efforts. 

“The interventionist impulse in the administration just has to wait,” said Hussein Ibish of the American Task Force on Palestine. “How do you craft a policy when the character of the new Palestinian government isn’t clear at all?” 

That sentiment put Ibish in rare agreement with pro-Israel hawks like Elliott Abrams, a former national security aide to Bush. 

“Abbas is signaling his priority is internal politics,” Abrams said. The Palestinian leader “does not believe there’s any negotiating to be done right now and certainly the Israelis don’t believe it either. There is no peace process. … It would be really foolish for President Obama to spend a lot of time [Thursday] setting out a solution for Middle East peace.” 

There is still talk in some quarters that Obama might step forward this summer with a peace initiative to try to head off a plan by Abbas to seek a United Nations vote in September on recognizing a Palestinian state. Kerry has called Abbas’s plan a “mistake” that could have “dangerous” consequences. 

The political turmoil in the region and the NATO-led military intervention in Libya have relegated the Arab-Israeli peace process to something of a sideshow. 

“The tsunami of change in the broader Middle East has overwhelmed the Israeli-Palestinian issue,” Clemons said.
Despite the earlier rhetoric about the centrality of the Middle East peace process, Jones said this week it’s the current upheaval that is earth-shattering. 

“What we’re witnessing in the Middle East and in the North Africa … is perhaps the most significant historical event since the end of the Cold War,” he said. 

Under Obama and prior presidents, the U.S. strategy for achieving Mideast peace has relied on cooperating with and publicly lauding some of the most undemocratic leaders in the region, including now-deposed Egyptian President Hosni Mubarak. 

When Obama visited Cairo for his June 2009 speech, Mubarak was clearly delighted. Many viewed the selection of Egypt as an American honor of sorts for the Egyptian dictator. 

Still, the democracy movement that swept Tunisia, Egypt, Libya, Bahrain and Syria has not been driven by anger at the U.S., or even at Israel. 

“The Palestine issue was not a primary motivating factor for the protesters in Tahrir Square,” Ibish said. “What they were talking about was their own government, their own rights. It wasn’t anti-American. It wasn’t anti-Israel.” 

The upheaval in the region, though, introduces yet another element of uncertainty into the peace process. The first foreign policy foray by the new Egyptian government was the agreement between the two Palestinian factions, Hamas and Fatah. 

“None of that would have happened if Mubarak was in power,” Ibish said. “It produces now policies not as friendly to Israel as they had been. … The new [Egyptian] government is more responsive to public opinion.” 

Over the weekend, Palestinian, Syrian, Lebanese and Jordanian protesters claiming inspiration from the Arab Spring clashed with Israeli troops along the border. Fifteen demonstrators were reported killed. Obama may feel compelled to publicly address these events when he meets with Netanyahu at the White House on Friday or in a speech Sunday to the American Israel Public Affairs Committee conference. 

Despite the regional transformation, the peace process remains essential, Abdullah insisted Monday during a meeting with Secretary of State Hillary Clinton. 

“With all that’s going on in the Middle East, the core issue of the Middle East still is that … Palestinian and Israeli peace,” he said.