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Published: Tuesday, 7/26/2011

Consumers vs. banks

The Consumer Financial Protection Bureau officially opened its doors last week, a year after it was created under the financial reform law. Score one for consumers. But the fight to create a bureau that is strong enough and independent enough to take on the banks isn't over.

Federal watchdogs have given the bureau stellar marks for getting up and running in a timely, professional manner. The bureau has already begun to tackle crucial issues, such as simplifying mortgage disclosure requirements and handling credit card complaints.

Banks and their congressional allies are pushing back hard, determined to weaken the bureau. It is not clear how much political capital President Obama is willing to spend to stop that.

It is important to recall why the bureau is so necessary. The financial crisis had its roots in dangerous loans that inflated a credit bubble. When it burst, tens of millions of Americans lost their jobs, savings, and home equity. Millions lost their homes. Everyone lost trust in financial and government institutions.

The new bureau concentrates consumer protection in one agency. Its sole purpose is to shield Americans, and the financial system, from abusive and deceptive lending in mortgages, credit cards, and other borrowing.

The banks -- big campaign contributors -- don't want robust consumer protection, because complex and obscure products are lucrative. House Republicans have begun to pass bills that would severely constrain the bureau's power to write and enforce rules and would reduce and imperil its budget. Mr. Obama has pledged to veto the bills if they reach his desk, but that won't stop the assaults.

Under the law, the bureau cannot exercise its full regulatory powers without a director. In May, 44 Republican senators vowed to block any nominee unless Democrats agreed to weaken the agency as called for in the House bills.

Last week, when President Obama nominated Richard Cordray, the former attorney general of Ohio and currently chief of enforcement at the bureau, Sen. Richard Shelby of Alabama, the top Republican on the banking committee, wrote in The Wall Street Journal that the nomination was "dead on arrival." Acting as if Dodd-Frank is not already the law of the land, he called on President Obama to "come to the negotiating table."

Mr. Obama erred in passing over Elizabeth Warren -- the Harvard law professor and consumer advocate who set up the bureau -- for the director's job. Mr. Cordray is a good choice, with a notable pro-consumer track record. Ms. Warren, who pioneered the idea for the bureau and helped push it through Congress, has drawn particular fire from banks and Republicans, who had turned their opposition to consumer protection into opposition to her.

In deciding not to fight for Ms. Warren, the President has forfeited the opportunity to stand up to the banks and to highlight their relentless efforts to undermine reform. It is hard not to think that Mr. Obama was worried that choosing Ms. Warren would have cost him and Democratic senators campaign contributions from the banks.

Mr. Cordray has the credentials and skills for the job. To win confirmation and, from there, to take on the banks and defend consumers fully, he will also need strong support from the White House. President Obama's decision to jettison Ms. Warren is not a reassuring sign.

-- New York Times



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