The newly created Consumer Financial Protection Bureau (CFPB) took a step forward today to getting its first director, as the Senate Banking Committee voted 12–10 to confirm Richard Cordray in the post. Even before the vote, however, President Obama raised the stakes.
Referring to Bank of America’s decision to impose a $5 debit card fees, he declared that “this is exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening.”
The White House later tried to back off the President’s threat of regulation, claiming that the President may not have said what he in fact did say. White House press secretary Jay Carney then tried to minimize the President’s statement, saying “He can, or anybody can, express an opinion that they think it’s excessive or unfair.”
But the President did more than simply express an opinion and (perhaps inadvertently) provided a glimpse of how the new regulatory bureaucracy created by the Dodd–Frank financial bill could very well operate.
The new Bank of America fee was itself a response to another Dodd–Frank provision: federal price controls on what banks can charge retailers when consumers use debit cards. Critics predicted that the controls would backfire and result in new fees on consumers. And that’s exactly what has now happened. But rather than rethink the price controls that caused the fees, the President’s immediate reaction was to double down on regulation and task the CFBP with stopping the fee.
In so doing, the President confirmed fears that the new agency would be a free-ranging political tool pursuing populist ideological goals. Even other financial regulators have been wary of its open-ended power, concerned that it will undercut their efforts to ensure economic stability. The President’s call to action should add to their concerns.
CFPB critics in the Senate have been pushing for substantial reforms of the agency. Among their ideas: Make it a multi-member board rather than resting all power in a single director, and require it to seek appropriations from Congress to fund its work. Currently, it receives money directly from the Fed free of any constraint.
The proposed changes are good steps, but even more is needed. Ideally, the new agency should be scrapped. At the very least, its authority should be more sharply defined and delineated.
The President’s stumble should serve as a wake-up call as to the dangers of the CFPB. The Senate, more than ever, should stand firm not let a director take his seat until safeguards are in place.