The Wonk Room

Shelby: Consumer Protection Agency ‘Folly And Dangerous,’ ‘Would Make The System Less Safe’

For anyone hoping that the regulatory reform debate in the Senate was going to be less rancorous than that in the House, the last few days have provided ample evidence to the contrary. First, in what Tim Fernholz called “health care 2.0,” Republicans claimed that they’re being frozen out of the process, and complained that “they are being forced into an artificial timetable that is reducing the chances of agreement.”

And then there’s Sen. Richard Shelby (R-AL), the ranking member of the Senate Banking Committee. Back in October, Politico called Shelby “a deal maker,” and said that “he’s looking more and more like he’s ready to compromise [on reg. reform] — regardless of whether his party leaders want to slow walk a Democratic priority.” Politico even reported that Shelby “hasn’t shut the door” on the creation of a Consumer Financial Protection Agency (CFPA). However, now that Banking Committee chairman Chris Dodd (D-CT) is gearing up to release his bill, Shelby’s door seems to be shut pretty tight:

Shelby backs stronger consumer protections “where appropriate, but believes the creation of a stand-alone agency is neither necessary nor wise,” said Jonathan Graffeo, spokesman for the Republican lawmaker. As drafted, the proposed consumer agency in Shelby’s judgment “would make the system less safe,” Graffeo said.

This comes just a few days after Shelby called the very notion of a CFPA “folly and dangerous.” As Reuters put it, “the latest assessment of Shelby’s views shows that he and [Dodd] have a long way to go.”

It seems then, that Senate Republicans are going to reprise the House Republicans’ argument that consumer protection responsibilities should not be removed and placed within a new agency, but should instead remain with the same regulators who had them — and failed to use them — in the buildup to the economic crisis. As McClatchy’s Kevin Hall wrote, “that’s the back story to the U.S. financial crisis. At every turn where regulation was missing in action, the actors did the wrong thing, all along the long, interconnected trail of transactions that make up mortgage finance.” That seems to be the system that Shelby is arguing to preserve.

One intriguing aspect of the Senate dynamic, though, will be how the Republicans approach Dodd’s plan to consolidate all of the existing federal bank regulators into one super-regulator. House Financial Services Committee Chairman Barney Frank (D-MA) and the administration oppose such a move. With Democrats on either side, where will Shelby and co. come down?