A long-simmering dispute over a powerful new consumer protection agency created in last year’s landmark Wall Street reform law broke out into a full-fledged political battle last week as Senate Republicans moved to prevent the White House from installing a new czar at the agency.
With Democrats and their liberal allies urging President Obama to use the Memorial Day recess to appoint consumer advocate and Harvard professor Elizabeth Warren to head the Consumer Financial Protection Bureau to avoid a Senate confirmation fight, Republicans on Thursday moved to prevent the Senate from recessing — making it impossible for Mr. Obama to install her or a number of other controversial nominees to unfilled posts.
“President Obama has been packing agencies with left-wing ideologues, but thankfully he won’t be able to for at least the next week,” said Sen. Jim DeMint, South Carolina Republican, after he and other Senate conservatives convinced the House Republican leadership not to send the Senate an adjournment resolution. “No controversial nominees will be allowed to circumvent the confirmation process during the break.”
Just before the Senate blockade, 43 House Democrats had written Mr. Obama urging the recess appointment of Ms. Warren, who has been working behind the scenes for a year to prepare the powerful new agency for its launch in July.
Liberal groups had gathered more than 100,000 signatures on a petition and thousands more fans on websites backing Ms. Warren, whose antagonistic relationship with the banking industry has provoked Republicans.
Before agreeing to appoint her or anyone else to head the new consumer bureau, Republicans want to restructure the agency to be less autonomous and powerful. Currently, it is slated to become a staunchly independent new arm of the Federal Reserve, funded from earnings on the Fed’s market operations rather than through congressional appropriations, thus insulating it from oversight and pressure from Congress.
The House is moving to pass legislation to turn the bureau into a commission more like the Securities and Exchange Commission or the Federal Trade Commission, which have five members divided between the parties, are funded by Congress and are considered more accountable to the legislature.
Mr. Obama would be seen as defending homeowners and consumers burned by Wall Street during the economic crisis, they say, while Republicans could be tarred for doing the bidding of big banks that are highly unpopular with the public.
The White House and Treasury Department, which aides note already have their hands full this year managing major disputes with Republicans over the budget, health care and taxes, have been mum about who they plan to appoint to the agency and never openly committed to a recess appointment of Ms. Warren.
But Ms. Warren, who has been setting up the agency as a special assistant at the Treasury for the past year, is the only candidate who has been consistently discussed publicly and even some banking lobbyists think she is destined to head the agency.
Former House Banking Committee Chairman Barney Frank, Massachusetts Democrat, has urged the president to appoint her, noting that 44 Republican senators pledged last month to block anyone the president nominates unless the agency is restructured — removing any incentive for the White House to try to name someone more agreeable to Republicans.
Richard Eskow, a fellow at the Campaign for Americas Future, said Mr. Obama has a “civic duty” to appoint Ms. Warren, given that the agency was her brainchild and that she has shepherded it from its legislative beginnings to its imminent launch of operations.
He accused Republicans of “doing the banking industry’s dirty work” and “trying any low-rent tactic” to oppose Ms. Warren and the agency she helped create.
Ms. Warren was grilled by Republicans at a House Oversight and Government Reform TARP and financial services subcommittee hearing on Tuesday at which subcommittee Chairman Patrick T. McHenry, North Carolina Republican, accused her of lying about her role in trying to mediate a global settlement over foreclosure irregularities between banks, regulators and state attorneys general.
But Republicans see their attempts to hamstring the White House’s powerful new regulator as heroic and aimed at saving the economy from a heavy dose of bureaucratic overreach.
Banks for several years have been extremely cautious in lending to consumers and businesses, mostly because of burgeoning losses on defaulted loans, but also out of concern about an onslaught of heavy new federal regulations. Economists say this is one major reason that economic growth has failed to gather steam.
“Failure to ensure proper checks and balances will always result in regulatory overreach and decisions that miss the mark, which in turn stifle risk-taking, innovation and ultimately jobs,” said Sen. Bob Corker, Tennessee Republican, a key member of the Senate Banking, Housing and Urban Affairs Committee who worked with Democrats last year to try to draft a bipartisan banking reform bill.
He noted that last year’s compromise efforts were stymied primarily because of differences about how powerful and independent to make the consumer agency, with Democrats opting to insulate the agency from congressional pressure by putting it within the Fed.
“While we all believe consumer protections need to be strengthened, whether Republicans or Democrats are in charge, no one person should have the power the director of the bureau is currently given,” Mr. Corker said.
Sen. Richard C. Shelby, Alabama Republican and ranking member of the committee, called the changes recommended by Republicans “common-sense checks and balances on this massive new bureaucracy.”
Brian Gardner, Washington analyst at Keefe, Bruyette & Woods, said the Republican tactics could backfire and lead to an open war that carries through to next year’s elections.
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