At a recent gathering of amateur consumer advocates in New York City, discussion turned to this thorny topic: How do you focus the rage people feel about rip-offs on fixing the problem? Consumers are quick to anger when a company unjustly charges a $35 late fee, but they seem far more reluctant to get involved as Congress debates legislation that would make the $35 fee illegal. Why? One obvious reason: Congress is slow and the legislative process is confusing.
So here's a quick scorecard on the debate over creation of the proposed Consumer Financial Protection Agency, which would be the first new federal consumer protection agency since the 1970s. While the congressional made-for-TV kabuki dance that will decide its fate won't take place for another several weeks, the real end game is happening right now, as Washington, D.C., appears to be slumbering under three feet of snow. So this is a good time to pay attention.
In case you missed the last episode, here's a quick background: Harvard bankruptcy professor Elizabeth Warren proposed a new agency several years ago that would regulate consumer contracts on financial matters like credit cards and mortgages. Warren, now a bit of a cult hero in consumer advocate circles, is currently chair of the oversight panel Congress set up to monitor the TARP bailout. Banks don't like her much, but she's the odds-on favorite to head the new consumer agency should it be signed into law.
During his campaign, President Barack Obama supported the idea of a new consumer protection agency, and he has called for its creation several times in the past year. In December, Rep. Barney Frank, D-Mass., ushered legislation through the House of Representatives -- barely -- that would create the agency. The Wall Street Reform and Consumer Protection Act passed by a 223-202 vote.
Note that this bill does much more than create a new consumer agency; it includes a full set of financial regulatory reform proposals. But creation of the consumer agency appears to be the most divisive issue. Supporters say that only an independent agency could act as a worthy adversary to the banking industry. Opponents argue that it's folly to create a single-purpose bank regulator that has no interest in the safety and soundness of the institutions or the overall health of the industry.
Given the tight House vote, debate in the Senate was expected to be difficult, and so far it has not disappointed.
Retiring Sen. Chris Dodd, D-Conn., is head of the Senate Banking Committee, which now controls the fate of the legislation. Last year, he'd indicated unflinching support for it. But in January, he flinched. Numerous reports indicated his willingness to negotiate away creation of the agency in exchange for other regulatory concessions from Republicans – specifically the senior Republican on the Banking Committee, Sen. Richard Shelby of Alabama.
The news sent consumer groups into a tizzy, with some predicting this meant the death of the Consumer Financial Protection Agency.
But turned out the obituaries were premature. Last week, Dodd's office announced that he had reached an impasse with Shelby, and that he was abandoning efforts at a compromise. Instead, he said, he would propose legislation that resembled the House bill.
Warren, meanwhile, fresh from preaching to the choir during an appearance on Jon Stewart's "The Daily Show," penned an impassioned op-ed in the Wall Street Journal reiterating the need for the agency.
"The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal," she wrote.
On Wednesday, Senate reform talks got a jump start, when Dodd opened negotiations with a different Republican on the Banking Committee, Sen. Bob Corker of Tennessee. Both made public statements about the renewed talks on Thursday.
"Senator Corker has proved to be a serious thinker and a valuable asset to this committee," Dodd said in his statement. "For that reason, I called him Tuesday night and asked him to negotiate the financial reform bill with me. We met in my office on Wednesday and given the importance of these issues he agreed. I am more optimistic than I have been in several weeks that we can develop a consensus bill to bring about the reforms the financial sector so desperately needs to prevent another economic crisis."
But does that mean creation of the agency is likely now? Not at all. Corker said Friday he is merely picking up where Shelby left off
"Like most Republicans I believe a stand-alone agency for consumer protection or separating those protections from safety and soundness are nonstarters," he said, according to Reuters.
What are they taking so long talking about?
There appear to be two issues which have bogged down -- and might ultimately kill - the agency. The first is independence. The second, a bit more subtle, is an effort to protect the independence of state-level consumer protections.
By now, creation of a completely independent CFPA -- something Republicans have compared to the Environmental Protection Agency -- seems off the table. Most reports indicate that the agency will survive only if it is part of another regulator. It might be housed in the Treasury Department or be a part of the Federal Reserve, but could retain some independent rule-making authority. And that's the sticking point.
In October, while there was a flurry of stories concerning the potential watering down of the new agency, Warren spoke to msnbc.com and appeared to draw a line in the sand. At the time, some areas of regulation, such as car loans, were removed from its purview by the House of Representatives.
"I draw the line at independence," she said. "If the new agency isn't independent, it isn't worth doing."
But this week, a source familiar with the negotiations said consumer groups have warmed to the idea of the agency being housed in the Treasury Department, as long as it has full independence within the department, comparable to the Office of the Comptroller of the Currency, which is also technically part of Treasury.
Balber, from Consumer Watchdog, said the key distinction involves independent rule-making authority,
"It would depend on how something like that is structured," she said. "The key is that no one would have veto power or some other form of power to weaken the agency's decisions. So a stand-alone agency that's part of Treasury could work," she said. "I don't think it would work if it were housed within a prudential banking regulator (such the Federal Reserve). They are looking first and foremost at bank profits."
Meanwhile, state officials are worried about an issue that rears its head every time Congress considers consumer protection legislation – pre-emption. Nationwide firms and industry groups often argue that federal law should trump, or pre-empt, state law, so that they don't have to abide by 51 different sets of rules. For example, a new federal law to require 45-day notice when raising a consumers' interest rate would override an existing state provision that requires a longer warning period. Obviously, state lawmakers and attorneys general have bitter distaste for pre-emption, which reduces their power and ability to regulate.
Because of hang-ups over the independence of the agency, negotiators haven't even begun to deal with the thorny issue of pre-emption yet, according to another source familiar with the talks. That means there are still significant obstacles in its way.
Meanwhile, opponents continue to voice their objections to creation of the agency. The U.S. Chamber of Commerce is leading the public fight, airing commercials that say the agency would hurt small businesses and making its case at the Web site Stopthecfpa.com.
Noted Republican pollster Frank Luntz has even gotten into the act, recently publishing a talking points memo called "The Language of Financial Reform." In it, he advises opponents of the Consumer Financial Protection Agency to paint it with the broad brush of "big government."
"Creating another costly government bureaucracy on top of existing bureaucracy isn't a solution - it helped cause the problem," he advises, according to the memo obtained by The Huffington Post. He also instructs opponents to appeal to their voters by saying the legislation is full of "lobbyist loopholes" for industries like car dealers and pawn brokers.
There are two other x-factors that might become part of the discussion. If a large U.S. bank supported creation of the agency, that would make it more palatable to Republicans. Earlier this month, Bloomberg reported that Bank of America CEO Brian Moynihan has told White House officials that the bank was not "lobbying against the agency." The bank stopped short of supporting it, however.
Meanwhile, it's unclear how much the force of Elizabeth Warren's personality and popularity might be adding to the financial industry's aversion to the agency. Banks are used to dealing with faceless, nameless bureaucrats. A popular consumer advocate with a ready-made bully pulpit might be part of the reason they are digging in their heels.
So the future of the agency, and the legislation, seems entirely up in the air, a moving target -- another reason that U.S. consumers might find it difficult to engage in the debate. Most observers feel that Dodd has the votes he needs to pass even the most liberal version of the bill through the Banking Committee, and that he intends to bring some financial reform bill to a vote on the Senate floor, probably in March. There, it is likely to find the same fate as health reform -- it won't have 60 supporters and will die a parliamentary death unless at least some Republicans support it. A source familiar with the discussions said Rep. Barney Frank wants to force a Senate vote, which would require Republicans opponents to cast a potentially unpopular vote against consumer reforms. Balber is among many consumer advocates who would like to see issue come to a head.
"We are still concerned that something less than consumer agency will come out of this," she said. "Right now, things are constantly shifting. We are calling on Dodd to make his position clear. … Meaningful financial reform must make the marketplace safer for everyday Americans."