Warren seen gaining key consumer protection post

Alert Email Print

By Ronald D. Orol and Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- An increasing number of Washington observers see improving odds that Elizabeth Warren will become the head of the important new Consumer Financial Protection Bureau, surviving mixed feelings from the Obama administration and determined opposition from bank lobbyists and Republicans.

Speculation about Warren's nomination has captivated Washington since the president signed into law earlier this month historic regulatory changes for the banking and financial industries.

Consumer advocates and a group of Democrat lawmakers in recent days have expanded their campaigns to seat the Harvard Law School professor.

The chair of the consumer bureau will sweeping authority. The new unit will be located at the Federal Reserve and will be responsible for overseeing new rules for mortgages and credit card products. It will also oversee a hodge-podge of financial companies that, so far, have escaped regulation of any sort, including pay-day lenders, who offer cash loans to low-income individuals, mortgage modification consultants, and smaller state and local mortgage brokers, who originated many of the worst mortgages.

In the early days, it looked like Warren would not get the post after Sen. Christopher Dodd, who shepherded the bank reform legislation through the Senate, said Warren might be unable to capture the filibuster-proof 60 votes needed to confirm her.

However, Warren supporters have raised doubts about Dodd's math and the political realities.

"You don't think Dodd can get the two senators from Maine to back her?" asked political activist and consumer advocate Ralph Nader, an ardent Warren backer. "When you have Babe Ruth ready to hit the baseball, why would you choose anyone else?"

Warren needs the support of Democratic senators and a handful of Republicans to be confirmed by the Senate.

White House spokesman Robert Gibbs said on Monday that Warren was "confirmable," however the Obama administration is also quietly considering other candidates who consumer groups argue aren't as good as Warren. These include assistant attorney general Gene Kimmelman and assistant Treasury Secretary Michael Barr.

Obama could avoid a Senate vote - at lease for the time being -- by making Warren a recess appointment, which would allow her to serve for about a year-and-half without requiring Senate approval.

Key GOP backers of the bank bill, Sens. Olympia Snowe and Susan Collins of Maine, and Scott Brown of Massachusetts on July 22 sent a letter to Obama urging him not to choose this tactic.

"While we have different views of the need for this new agency, as supporters of the legislation that included it we firmly believe that the United States Senate's responsibilities in confirming the head of the CFPB are paramount," the Republican senators wrote. Sens. Brown and Collins said they will review the nominee once there is one. Snowe did not return calls.

The consumer protection agency -- and who heads it -- are key points of contention between Democrats and Republicans. Democrats argue that existing regulators, including the Federal Reserve, failed in their duty to protect consumers from deceptive loans. They insist that going forward the CFPB -- not bank regulators -- will make sure that lenders don't lure borrowers to take on too much debt.

Opponents of Warren, led by Sen. Richard Shelby, Alabama Republican and ranking member of the Senate Banking Committee, argue that the agency threatens to become a new large bureaucracy that would hurt mortgage lenders, raise costs for consumers, limit their choices and make it impossible for some qualified borrowers to buy a home. All this will stifle innovation in mortgage and other consumer finance products, they say.

"When you have Babe Ruth ready to hit the baseball, why would you choose anyone else?"

Ralph Nader, consumer advocate

"I would hope she's not confirmable," Shelby told Bloomberg TV last week. "I would not support Warren. She's the guru dealing with behavioral science, trying to change everything. This is a power grab. Whoever has that job has awesome power over our economy."

But it's unclear whether Shelby can keep all 41 Republican senators from backing Warren if she were nominated.

Consumer groups like to point out that the 61-year-old Warren was a voice in the wilderness, advocating for an independent consumer protector during the housing boom that eventually led to the financial crisis. Warren, born and raised in Oklahoma, has studied and written about consumers and debt for years, and saw trouble coming, before the economic meltdown hit.

During the past year-and-half, Warren has worked as chair of the Congressional Oversight Panel for the $700 billion Troubled Asset Relief Program. In that position, Warren has repeatedly found herself at loggerheads with Treasury Secretary Timothy Geithner over the Treasury's handling of the bank bailout, leading to speculation that Geithner may be less than enthusiastic about having her appointed to the consumer unit.

The bigger question

For many analysts, the questions about Senate confirmation were a sideshow.

Charles Gabriel, managing director of Capital Alpha Partners, said he had no doubts that Warren would be confirmed by the Senate. Brian Gardner, Washington expert for Keefe, Bruyette &Woods, also said he believes it is likely she would be confirmed.

The bigger question for these analysts is whether the Obama economic and political teams would even nominate Warren.