In a hearing yesterday before the Housing Financial Services Committee, Elizabeth Warren defended the mission of the Consumer Financial Protection Bureau (CFPB) and refuted charges by Republican lawmakers that the bureau runs the risk of being too powerful. She also laid the blame for the economic crisis on ‘irresponsible lending’ and insisted that the crisis would not have been as severe if the CFPB had been in place.
‘Oversight is a deeply important feature of our democracy that provides for checks and balances and helps prevent overreach, violations of law and misguided expenditure of public funds,’ said Warren. ‘Oversight of the CFPB – during its stand-up and beyond – will build greater confidence in the consumer bureau by both other governmental entities and the public. The CFPB has an interest in participating meaningfully in the oversight process, and we intend to continue to be an active partner in the important work of oversight.’
However, the Republican committee members viewed Warren's comments with skepticism. Financial Services Committee Chairman Rep. Spencer Bachus, R-Ala., criticized the CFPB's structure, stating that it could become ‘the most powerful agency that's ever been created in Washington.’ He also chided Warren's authority as the individual who is putting the bureau together, noting that she was operating without congressional oversight.
‘You have a lot of discretion and a lot of power, but I see very little accountability,’ Bachus said.
Other Republican lawmakers concurred. ‘This agency will be able to act outside the appropriations process, which means it will not be held accountable for its actions,’ said Rep. Ed Royce, R-Calif.
‘I look at this Congress – we are the voice of the American people, and when we don't have any oversight of what you're doing, I see that as incredibly problematic,’ said Rep. Sean Duffy, R-Wis.
Yet Warren insisted that Congress would be able to exercise control over CFPB operations.
‘As is true with respect to all other federal agencies, Congress has the last word on CFPB rulemaking,’ she said. ‘If Congress is unhappy with a rule, it can overturn that rule. In addition, the CFPB is subject to judicial review to be certain that it operates only within the authority granted by Congress and otherwise acts in accordance with law. If it fails to do so, the courts can overturn its actions.’
Warren added that the Dodd-Frank Act was designed so Congress could maintain ‘meaningful oversight and accountability of the CFPB.’ She noted that under this legislation, the CFPB was required to submit annual reports to Congress and have the Government Accountability Office conduct an annual audit of its expenditures on behalf of Congress.
However, Warren's explanation did not sit well with Rep. Shelley Moore Capito, R-W. Va. ‘I think we can all agree there were lapses in the oversight and inherent problems with the regulatory structure,’ she said. ‘[But] claiming Congress has the ability to overturn rules is not an effective way to conduct oversight.’
Furthermore, Warren noted, the CFPB director would be required to testify before Congress twice a year. When asked by Bachus when President Obama was expected to name a director, Warren said, ‘I understand there will be a nomination soon.’
Duffy pointed out that Warren gave the impression that she was the de facto head of the bureau because of her work on its behalf, most notably with her appearance in an introductory video that appears on the CFPB's website.
Separate from the hearing, Bachus announced that he was introducing legislation that would reconfigure the CFPB so it would be run by a five-member bipartisan board. He cited the lack of an official director as the impetus for this proposal.
‘This is an agency that on July 22 will start enforcing the law,’ he said. ‘We're, what, 90 days out?’
Blaming lenders
As part of her testimony, Warren pointed to the mortgage banking industry as being the main culprit in the run-up to the September 2008 meltdown of the U.S. economy.
‘The current economic crisis began one bad mortgage at a time,’ she said. ‘Mortgages that promised investors huge profits for low risks were the raw material of the securities that contributed to the near collapse of the worldwide economy. Irresponsible lending that encouraged people to buy homes with no realistic hope of ever paying off their loans has now led millions of families into foreclosure and bankruptcy.
‘If there had been just a few basic rules and a cop on the beat to enforce them, we could have avoided or minimized the greatest economic catastrophe since the Great Depression,’ she continued. ‘In the future, the new consumer bureau will be that cop.’
Although the CFPB is not due to officially begin operations until July 21, its involvement in the ongoing negotiations with the 50 state attorneys generals and the major servicers raised the ire of several Republican lawmakers.
‘The involvement [of] bureau employees in these discussions raises serious questions,’ said Capito.
Rep. Patrick McHenry, R-N.C., noted that Warren, as an appointed adviser rather than an approved regulator, did not have the statutory authority to be involved in these discussions. Yet Warren insisted that mortgage lenders would be treated fairly by the CFPB.
‘One of the consumer bureau's chief responsibilities will be to supervise certain nonbank financial companies that provide consumer financial products and services,’ she said. ‘These include mortgage brokers, mortgage lenders, mortgage servicers, payday lenders and private student loan providers. This will be the first time that many of these nonbank financial services companies will be subject to federal compliance examinations. We intend our examinations to be conducted efficiently and in a fair and transparent manner. We will strive to enforce the federal consumer financial laws appropriately while remaining cognizant of increasing compliance costs and burdens for regulated entities.’
SOURCES: House Financial Services Committee, ABC News, Associated Press, CNN Money, Politico, Reuters, TheHill.com, Washington Post