With the country still mired in a recession caused by the reckless decisions of big banks, Republicans in Congress continue to fight tooth and nail against stronger government oversight of the financial industry. Last week, Senate Republicans rejected the nomination of former Ohio Attorney General Richard Cordray to head the new Consumer Finance Protection Bureau (CFPB), created by the Dodd-Frank financial reform legislation. Republicans did not feign doubts about Mr. Cordray’s qualifications or suggest that he was the wrong person for the job. Instead, they pledged to reject any nominee to head the CFPB until the structure of the agency itself is changed.
These Senate Republicans are apparently unhappy with the manner in which the previous Congress responded to public outrage about the financial crisis and the lax government oversight that enabled it. So they are using the Senate’s arcane rules to thwart the democratic process. Congress established new rules to protect consumers from exploitation by financial institutions. The CFPB was intended to be independent from Congress, but Republicans seem determined to reign in the agency.
Sen. Lindsey Graham protested that the agency is funded by the Federal Reserve, removing any opportunity for Congress to influence the agency through the budgeting process. Graham warned that the CFPB is “something out of the Stalinist era.” Given our government’s recent history of failure in regulating the financial services industry, there is nothing communist about having this agency operate free from political influence. This type of rhetoric is ridiculous, and it will not satiate the public’s continuing anger at Wall Street.
Looking back on the roots of the financial crisis, Americans understand that the government should have seen it coming, given the enormous stake that big banks held in subprime mortgages. Instead, the government responded to the problem by throwing taxpayer money at the big banks. (A recent news storysuggests the bailout was even bigger than we thought.)
But hindsight is 20-20. The last Congress sought to protect consumers going forward. The “oversight” agencies in place before Dodd-Frank seemed to be looking out for banks, not consumers. Now, Republicans seem intent on breaking the back of any agency dedicated to protecting consumers. Sen. Richard Shelby argues that, “Congress must assert its authority over the regulators it creates to hold them accountable for their failures.” But Congress had authority over some of the regulators who sat on their hands before the financial crisis, and given the hyper-partisanship gripping Congress these days, the public will be well-served by an independent consumer protection agency.
Obama should stand firm on Cordray’s nomination. The director of the CFPB will have a tough job, and Cordray seems eminently qualified. Last week, the agency kicked off a pilot program to simplify credit card agreements. Until a director is installed, let’s hope the CFPB continues to roll out common-sense reforms. President Obama has faced criticism for failing to push for sufficient financial reforms, but if he sticks to his guns, he may find the American middle class rallying to his side.