WASHINGTON — The Consumer Financial Protection Bureau created in the wake of the 2008 financial crisis is failing the consumers it was designed to help and “remains one of the least accountable agencies in the federal government,” the Republican chairman of the Senate Banking Committee said Tuesday, two days before the regulatory body is set to present a semi-annual report to Congress.
But a Democratic senator who was key to the creation of the CFPB strongly chastised critics for ignoring the lessons of the 2008 financial crisis.
Republican Sen. Richard Shelby, the chairman, stressed the importance of maintaining a democratic process in creation of new CFPB regulations. “It is important that these and other issues be fully vetted before Congress and the American people.”
Witnesses invited to testify by the Republican committee members criticized the CFPB, created under the Dodd-Frank banking reform law, as obstructing competition in the consumer finance industry due to excessive regulations.
But Massachusetts Sen. Elizabeth Warren, who pushed for the idea of a consumer watchdog to regulate the financial services industry even before she was elected to the Senate, forcefully attacked one of the witnesses, former Federal Reserve Deputy Director Leonard Chanin, who was in charge of financial regulation at the Fed before being tapped by Warren to run the CFPB’s rulemaking operation.
Chanin had joined other critics in saying the regulations have stifled the financial services industry.
Warren said a commission that analyzed the 2008 financial meltdown criticized the Fed for failing to identify the subprime “toxic” mortgages that caused the crisis.
Chanin responded that the Fed bases decisions on data and “no data was provided to the Fed … that suggested there was a meltdown in the mortgage market in 2005 and 2006.”
Warren responded, “Did you have your eyes stitched closed?”
“Given your track record at the Fed, why should anyone take you seriously now” in calling for less regulation?” she asked.
Ohio Sen. Sherrod Brown, the committee’s top Democrat, said he is “troubled by Republican efforts to undermine, and even eliminate the CFPB,” given that the factors leading up to the financial crisis happened while “regulators looked the other way.”
“Over and over again the CFPB has exposed unfair and abusive behavior by financial companies,” said Brown citing practices such as hidden fees, deceptive marketing and discrimination against minorities.
“The benefits of the CFPB are clear,” Brown said. “Its actions have resulted in more than $11 billion being returned to over 25 million consumers.”
But Todd Zywiki, economics professor of law at George Mason University, said in written testimony that an “unprecedented lack of democratic accountability” enabled the CFPB to “promote its own bureaucratic interest at the expense of the public and American families”,and trampled other public policies, such as consumer choice and financial innovation.
CFPB Director Richard Cordray will testify Thursday during a hearing on the CFPB semi-annual report to Congress.
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