Senate Republicans Block New Consumer Watchdog

Senate Republicans made good on their promise to block Richard Cordray from becoming the first permanent director of the Consumer Financial Protection Bureau Thursday morning, in a vote that promises to keep consumers' rights in limbo at least through the 2012 elections.

Cordray, formerly the attorney general of Ohio and now the bureau's enforcement chief, was President Obama's nominee to lead the bureau, which now is led by an acting director. Cordray won a majority of Senators, with 53 votes for and 45 against.

But Presidential nominees need 60 votes to win. With votes falling on strict party lines, Cordray failed to clear the supermajority hurdle. Only two Republicans broke ranks, and the backstory behind those votes is telling. Scott Brown of Massachusetts voted with Democrats to end the debate. Brown faces a potentially tough reelection campaign against Elizabeth Warren, who originally created the idea of the bureau, lobbied for its creation and served as the president's assistant in charge of setting it up.

[Read our coverage on the Consumer Financial Protection Bureau]

The other quasi-dissenter was Olympia Snowe, who voted "present." The Maine Republican also faces a tough reelection campaign, a fact that the Obama administration tried to exploit this week by sending officials to Maine to campaign on Cordray's behalf.

Democrats blasted the Republicans for opposing Cordray's nomination.

Sen. Sherrod Brown (D-Ohio) told the L.A. Times that "more than 40 of my colleagues chose Wall Street special interests over Main Street consumers. They should be ashamed of themselves."

Republicans countered that their opposition to a director would remain until President Obama agreed to several changes that would reduce the bureau's power, including replacing its single director with a five-member committee, and giving Congress direct control of its budget.

"This notion that we're against consumer protection, that we're trying to gut the CFPB is just silly," Sen. David Vitter (R-La.) told the L.A. Times. He said the structural changes were intended to limit the bureau's "unbridled, unprecedented authority."

[Resource: Get your free Credit Report Card]

As long as the CFPB remains without a full-time director, its power to enforce consumer protection laws is significantly limited. Among the things the bureau can't do:

- According to a January report by the Treasury department's inspector general, without a permanent director the bureau is powerless to prohibit "unfair, abusive or deceptive practices."

- The bureau can suggest ways for financial institutions to make their products and contracts more user-friendly, like mortgages and credit card contracts that regular people can actually read. But it can't force the institutions to make those changes.

- The bureau cannot enforce existing laws regulating the following industries:

• The entire mortgage industry, including subprime loans, securitization, servicing and title registration. The industry's push to make short-term fees from subprime mortgages without regard for those loans' long-term viability was a major cause of the 2008 financial meltdown, according to the Financial Crisis Inquiry Commission's final report.
  Payday lenders, which on average charge fees equal to roughly 400% APR, according to the Center for Responsible Lending.
• Student lenders and for-profit schools, many of which have been accused of driving students into debt with little regard for whether students will ever be able to graduate or repay their loans, thereby trapping dropouts in a never-ending cycle of debt (since student loans are the only form of debt not wiped clean by bankruptcy). We covered this issue here.
• Pawn shops, rent-to-own stores, Wal-Mart financial centers, and other high-fee financial services companies.
• The credit scoring industry, which many researchers have found to be plagued by inaccurate information on consumers, a lack of transparency, and no effective means for consumers to correct information, as we covered here.

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