It does appear that Elizabeth Warren has the inside track to getting the position as director of the Consumer Financial Protection Bureau. We know that bureau, as part of the Dodd-Frank bill, lives inside the Federal Reserve, albeit with an independent budget and a (mostly) independent rulemaking authority.
However, at the outset, the bureau comes under the auspices of the Treasury Department. They will be responsible for its initial design and organization, before transferring it over to the Federal Reserve, probably in about a year (in the meantime, the Fed retains consumer protection powers). And reports are that Treasury has already begun that design and organizational process.
Officially, this process is informal. Treasury spokesman Erika Gudmundson maintained that the department is “talking about” staffing up at CFPB, and isn’t sure about the timeline for naming an interim director. There is some coordination going on between Treasury, the Federal Reserve, and other affected agencies.
However, a source tells FDL News that Geithner is working on this process with Elizabeth Duke, a member of the Federal Reserve Board of Governors. Duke is a former community banker and the past head of the American Bankers Association, a trade lobby group. She served on the ABA’s board of directors from 1999 to 2006. The ABA opposed the Dodd-Frank bill almost entirely because of the Consumer Financial Protection Bureau.
What’s more, Duke herself specifically opposed an independent agency in July 2009 testimony, and endorsed keeping the responsibility for consumer protection in the Federal Reserve. In fact, she went further, promoting the Fed’s consumer protection prowess despite the agency having missed the housing bubble and the predatory lending that enabled it.
The Federal Reserve Board believes that that consumer protection is vitally important to the strength of the economy and to maintaining financial stability. Our four decades of experience have provided us with a core competency in this area. We are proud of our many significant accomplishments, which attest to the importance that the Board attaches to its consumer protection mission. Accordingly, as Congress considers legislation to reorganize agency functions with regard to consumer protection, one option that might be considered would be to retain the Federal Reserve’s consumer protection responsibilities, and consider additional policies to strengthen and further reinforce our accountability going forward. Along these lines, I would like to offer some suggestions for how this could be accomplished.
First, as I mentioned previously, Congress could formally codify consumer protection as a core mission or responsibility for the Federal Reserve, similar to monetary policy and banking supervision and regulation. This would provide a clear and ongoing understanding that consumer protection matters should be viewed as an integral part of the Federal Reserve’s overall mission.
Second, Congress could require the Chairman of the Federal Reserve Board to report periodically regarding the “state of consumer protection,” in the financial services industry, similar to the semiannual monetary policy report to the Congress. Such reporting could include a comprehensive review of the Federal Reserve’s actions taken to strengthen consumer protection, the results of regulatory sufficiency reviews (as described below) and planned future actions to address potentially unfair and deceptive acts and practices, a review of enforcement actions, studies of consumer finances, availability of financial services especially in underserved areas, or other matters as requested by the Congress.
Third, we plan to conduct periodic sufficiency reviews of consumer regulations and policies. These reviews will consider emerging trends in consumer financial services, whether existing regulations are adequate for protecting consumers, and will identify those areas in which new consumer protection measures are needed. We will develop a process that includes regional public hearings in Washington, D.C. and at several of the Federal Reserve Banks. The hearings will be held every two years to gather information on consumer issues and risks–similar to the process required by the Credit CARD Act of 2009. As we envision this process, the Federal Reserve’s Consumer Advisory Council would assist in preparing the agenda, and its members would participate in the hearings, as appropriate. The findings and recommendations would be reported to Congress [...]
We believe that replicating in another agency the deep expertise and full array of functions embedded within the Federal Reserve and used to support our consumer protection program would be enormously challenging.
This was all she wanted to do. Duke did not favor an independent agency, or even a bureau inside the Fed with an independent director and budget and (mostly) rulemaking authority. She thought that the Fed was generally doing quite a good job with consumer protection, and that a few tweaks here and there would sew it up.
If the reports I’m getting are true, this is the woman dealing with staffing up and organizing the Consumer Financial Protection Agency, before the director gets a chance.
The Federal Reserve has not yet returned comment regarding Elizabeth Duke’s role.
This is crucially important. There’s a lot someone in power can do to mess with a federal agency at the outset. You can hire some staffers not committed to the agency’s goals, or give them poor working conditions, or any number of things. Then the new director comes in and is immediately faced with a turf war. If a community banker dismissive of consumer protections ends up setting the vision for the consumer protection bureau, it could slow its progress out of the gate. If the Department where the agency originates is more concerned with “extend and pretend” – letting the banks get out of trouble by earning their way past the bad loans on their books, in part through inundating consumers with higher fees on their products – then that worldview of the banks being more important than the people can get embedded into the agency.
I’ve heard conflicting reports on this – including that the lead staffer setting up CFPB worked previously at the Center for Responsible Lending. And given how the President and the Treasury saved the CFPB from peril over and over again during the FinReg debate, they may be plenty committed to its successful operation. So this could be nothing. But if the mission of the CFPB conflicts with the goals of letting the banks earn their way out of insolvency, that could present problems. Especially if those involved are more concerned with saving the banks.
The easy way out of this is to not only nominate Elizabeth Warren, but to without delay name her to the position of interim director by hiring her at Treasury. This requires no Senate confirmation for an indefinite period.