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CFPA Still Languishing In The Senate

February 17, 2010 - by Eric Naing

Republicans and a handful of pro-business Democrats are standing in opposition to an independent consumer financial watchdog agency – a central pillar of President Obama’s financial regulation agenda.

The Consumer Financial Protection Agency, or CFPA, would regulate institutions that provide consumer financial products such as mortgages, loans and credit cards. The House last December passed the CFPA as part of an omnibus financial reform bill (H.R.4173) but Democrats can’t find enough senators to get the agency past the GOP-induced 60-vote hurdle in the Senate.

Republicans say an independent CFPA would be too powerful and would just be more big government bureaucracy that will stifle business.

In addition to unanimous opposition from House and Senate Republicans, a few business-friendly Democrats such as Sen. Ben Nelson [D, NE] and Sen. Mark Warner [D, VA] are also sceptical of the CFPA.

Sen. Chris Dodd [D, CT], the retiring chairman of the powerful Senate Banking Committee, is leading the effort to craft the Senate’s financial reform bill. But as Donny notes, Dodd is struggling to find a compromise on the CFPA.

And opponents of the CFPA are now finding inspiration in the health care debate.

The Hill reports that financial lobbyists, who wield continually growing influence in Washington, hope to sink the CFPA in the same way that the public option was killed.

In a recent Wall Street Journal editorial, CFPA mastermind and Obama economic advisor Elizabeth Warren explains why such an agency is necessary:

The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”

She also swats down the idea that the CFPA represents more bureaucracy:

The latest lie is that the CFPA is “big government.” The CEOs all know that the current regulatory structure, which they support, is big government at its worst: bureaucratic, unaccountable and ineffective. The CFPA will consolidate seven separate bureaucracies, cut down on paperwork, and promote understandable consumer products. In the process, it will stabilize the industry, rebuild confidence in the securitization market, and leave more money in the pockets of families. Complaining about short, readable contracts and efforts to slim down bureaucracy only further diminishes the banks’ credibility.

But in the face of unanimous Republican opposition, Sen. Scott Brown [R, MA] taking away the 60th Democratic vote and wavering Senate Democrats, the prospects for the CFPA continue to look grim.

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