The Consumer Financial Protection Bureau just launched its website. Meanwhile, Shahien Nasiripour has a story that found “… if the White House can’t get a nominee through the Senate by July, the bureau will lack the authority to supervise nonbank lenders, according to a Jan. 10 report by the inspectors general of the Treasury Department and Federal Reserve obtained by The Huffington Post.” One of the main reasons for creating a Consumer Financial Protection Bureau is to close a loophole called “regulatory arbitrage,” which lets a lot of these nonbank subprime lenders avoid following the same rules that regular banks do when it comes to lending. So if there isn’t a nominee soon, the CFPB is going to encounter a serious problem in doing one of the most important parts of its job.
So it’s time to talk about who should lead it. People are currently having this conversation, putting forward potential candidates for the job. I’ve been following this since the bill passed and, at this point, I think Elizabeth Warren is the obvious choice. Warren is obviously credentialed enough — a Harvard Law professor who came up with the idea, who has written extensively on the topic and is the third most cited scholar on bankruptcy and consumer-related finances. During the previous debate, there were three major critiques about her running the CFPB: that she wasn’t experienced enough in starting a new agency, that she was disliked by industry, and that she wasn’t confirmable. Since then she’s done an excellent job starting up the agency, hitting the ground running. She has stalemated the critiques from industry and Republicans. And the Republicans have shown that they hate the agency itself but don’t actually mind Warren as far as candidates go, so she’s relatively more confirmable than people imagine. She’s made as good of a transition from campaigning to governing as anyone would have expected, and then some.
Starting Up The Agency
As for staffing, Warren is managing a team of 150 as they continue to build and launch the bureau. As far as all reports go, she’s doing an excellent job. She is under some intense scrutiny, particularly from established regulators and lobbyists, and surviving a round of hostile questioning from a resurgent Republican House. There have been no horror stories. By all accounts, Warren and the CFPB team are getting along with Secretary Geithner and Treasury.
She has signed up Holly Petraeus to work on military affairs, giving the bureau a scope that builds on many different fronts. (The GOP has supported consumer protection bills for the military in the past.) And the most important hire, from my point of view, is former Ohio Attorney General Richard Cordray to help lead enforcement, an AG who is serious about getting to the bottom of the foreclosure fraud crisis. Warren has assembled a fantastic team with few, if any, pitfalls.
While assembling the team, Warren has also contributed to the complicated, yet very important, battle over servicing fraud, helping to veto an ill-advised notarization bill early on. She has been able to staff an impressive team while also contributing to one of the most important, ongoing situations in consumer finance.
Working With Community Banks
Community banks had two main objections during the fight to create the CFPB. The first was that they didn’t need a new regulator because they already had several focused on consumer regulation. The second was that they didn’t cause the crisis; the crisis was generated by the shadow banking sectors of fly-by-night mortgage originators, originators that Greenspan could have regulated but chose not to. One can imagine the community bankers being skeptical of someone promising to consolidate regulators, thus upsetting established bureaucrats, as well as taking on something that regulators have ignored in the past.
By all accounts, Warren is making inroads. The whole idea was based on regulatory consolidation from early on. If you look at what Elizabeth Warren wrote for the Roosevelt Institute’s Make Market Be Markets conference, it was clear this was a goal of hers. You can see that she gets their concerns in her Politico op-ed, which was well received.
New Potential Allies
Rep. Jeb Hensarling (R-TX) has called the bureau a “consumer credit rationing agency.” Reading his critique and other conservative GOP critics on the topic, I’m almost surprised by how impersonal their criticism is. If it was anyone else, they would still be trying to go after the CFPB’s budget, scope and independence.
And many Republicans even seem to be warming to Warren. Rep. Randy Neugebauer (R-TX) has said, “She wouldn’t be my last choice. I don’t know whether she’s my first choice, but she certainly wouldn’t be my last choice… If [the Consumer Financial Protection Bureau] isn’t going away, then what we have to do is deal with what we’ve got, and I think it’s easier to deal with an agency where we have a little bit more permanency about its operations…” Which isn’t that bad. She discussed consumer finance in a press release with Republican Senator Snowe. The Wall Street Journal seems almost surprised by how much outreach Warren is doing with the GOP. She has done extensive outreach to State Attorneys General, both Republicans and Democrats. She’s emphasized transparency in her work as well. She is as well-respected by the GOP as any effective leader is going to be.
I’m never a good judge of conventional wisdom, but if it’s that Warren can’t get through the Senate, I think it’s wrong, or at least very overstated. I think she’ll have a better shot than anyone else. Warren and the CFPB aren’t on the tea party’s radar, and the Chamber has had real difficulty astroturfing this topic. The left is energized about this nomination, even more so since the strong role the CFPB will need to play in foreclosure fraud and servicing regulations has become clear. So what’s the downside of her being the nominee?