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Elizabeth Warren: Pass A Consumer Protection Agency Or Forget Regulatory Reform

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If the financial reform bill doesn't establish an effective and independent consumer protection agency, Congress would be better off passing nothing at all, Elizabeth Warren warned on Friday.

Warren, one of the country's foremost consumer-right's advocates and the congressionally-appointed watchdog for the Troubled Asset Relief Program, said her chief concern is that financial regulatory reform legislation will suffer the same fate as health care reform -- with noble principles either scaled down or negotiated away. The Consumer Financial Protection Agency, she said, is not optional.

"The CFPA is the heart of what makes regulatory reform work," Warren said in an interview with the Huffington Post. "The consumer credit market is where the biggest abuses were. It is where families will be most directly affected and it is where the American people will see change. CFPA is how to make clear that regulatory reform is for them, and that it isn't a game among insiders.

"We just can't pass a regulatory reform bill that acquiesces to the industry on every front and where everything is so watered down that nobody has to take a hard vote," she said.

"It's not ok to weaken the agency so much that, while everyone can vote yes and pretend to support consumers' right to a fair deal, nothing really changes. I want a strong agency, and if there's not going to be a strong agency, then I at least want to see an up-or-down vote on it. Let's see a vote."

And if it fails?

"Shame on them," Warren declared.

The remarks are a shot across the brow to Democratic lawmakers, particularly Senate Banking Committee Chairman Chris Dodd (D-Conn.), who recently floated the idea of dropping the CFPA as a way of winning bipartisan support for the bill. Dodd is a strong CFPA supporter himself, but the difficulty of corralling the 60 votes needed to beat back a Republican filibuster has compelled him to consider concessions. Dodd is said to be offering Republicans a consumer protection program that would be tucked inside another regulatory agency, rather than being independent.

In her interview Friday morning, Warren said this would be a mistake in both policy and politics. The country, she noted, is in no mood to see lawmakers take it easy on the financial institutions.

"I live in Massachusetts," Warren said, raising the issue of the just-concluded Senate election there. "I could not miss the fact that [Republican Senator-Elect] Scott Brown portrayed himself as an outsider who tapped into the anger that people are feeling right now."

I think people are saying, "The house is on fire. No more doing business as usual in Washington. No more negotiations behind closed doors with the industry."

With this political mood as a backdrop, Warren applauded the president for a series of new initiatives he announced both before and after the Massachusetts election took place. A tax on big banks as a means of recouping TARP funds was a good start, she said; the proposal to set limits on the size of banks and separate their commercial and investing activities was an even smarter and more aggressive move, though more needs to be done.

"No one proposal will fix the crisis," Warren said. "No one thing caused it and no one thing will fix it. This crisis was brought on by a breakdown at multiple levels... If we have a strong consumer agency, we dial a lot of the risk out of the overall economic system. Too Big To Fail (TBTF) represents the other end of the spectrum of things that need to be repaired. When we get to TBTF, the question is how to pull back the implicit guarantee that we will always rescue these banks. The president proposed limiting the largest institutions and restricting the risky investments that depository institutions can take."

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