May 4, 2010
Another sticking point in the CFPA debate is the question of whether to establish it as independent agency or house it an existing federal bureau. Under the House bill passed in December, the CFPA would be a stand-alone agency with its own budget and staff, and its decisions would be final. In an apparent move toward compromise with Republican critics, however, Dodd’s bill would locate the CFPA within the Federal Reserve, though it would grant the agency its own funding stream and presidentially appointed head. Richard Shelby, the Senate Banking Committee's top Republican, has signaled that he wants to go even further to limit the power of the CFPA by subjecting any decisions it makes to veto by bank safety and soundness regulators.
Ultimately, the question of veto power will likely prove more contentious than where the CFPA is housed. Duncan, for example, said he would prefer the agency to be independent of any existing bureau, but he also said this may not matter much, as long as the agency is able to make final decisions without the threat of veto and to independently enforce its rules. Indeed, if the head of the new agency is a direct presidential appointee, he (and by extension the president) may be able to shape the culture of the new agency, regardless of whether the agency is technically part of an existing government department. And if the CFPA is granted its own revenue stream, it will have considerable freedom of action. Subjecting any CFPA decision that may interfere with bank profitability to veto by outside regulators, however, could render the new agency impotent from the start, given the high compliance costs and reductions in bank revenues that tighter consumer protection regulations could produce. Such an agency might be worse than useless, because it would cost valuable resources and may produce only limited results.
In any event, the end of this year may be a hard deadline for passage of the CFPA, or for any major financial reforms. The Democrats could suffer heavy losses in this November’s midterm elections, and, as Duncan notes, many Republicans seem wary of the CFPA, as well as other aspects of the Democratic financial reform agenda. Duncan and other observers place the deadline as early as August, because sitting representatives will need to return to their districts to campaign before the fall. In the meantime, the fate of the new agency will depend on the ability of Senate Republicans to stall – and the willingness of Senate Democrats to compromise.
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