It's time for senators -- especially the Republicans -- to square their upcoming votes on financial reform with their long-professed desire to protect families, said consumer advocate and federal bailout watchdog Elizabeth Warren on Wednesday in an interview with the Huffington Post.
"Everyone in Washington claims to be on the side of families and to support reform," said Warren, a member of the 2010 TIME 100 list of the world's most influential people. "But the test is who votes to paper over problems with another regulatory system designed to fail and who votes for real Wall Street accountability even if it means that some donors will be disappointed.
"I'm tired of hearing politicians claim to support families and, at the same time, vote with the big banks on the most important financial reform package in generations. I'm deep-down tired of it."
Of all the proposals in the 1,400-page Senate bill attempting to reform Wall Street and protect American consumers, none is more contentious than the one calling for the creation of a consumer-focused agency dedicated to protecting borrowers from abusive lenders.
Reform-minded Democrats want a powerful independent entity able to defend powerless families from the banks and financial firms that squeeze profits out of customers through tricks, traps and outright predatory loans.
Moderates want to say that they voted for a bill that protects consumers -- even if it really doesn't.
Republicans profess a desire to protect consumers, acknowledging regulators' past failures, but they also don't want to stem the flow of credit or needlessly harm lenders' ability to make a buck.
The Senate bill, authored by the banking committee's chairman, Christopher Dodd, a Connecticut Democrat, calls for a consumer entity to be housed inside the Federal Reserve. It largely, though, adheres to Warren's four tests: a chief appointed by the president, an independent source of funding, the authority to write consumer rules and the ability to enforce them against unscrupulous lenders. The unit, thus, focuses squarely on consumers. Ensuring banks' profitability is left to banking regulators.
The Republicans' counter-proposal, released this week, fails all four of Warren's tests.
It calls for a council led by the heads of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve. They'd issue rules, supervise "our nation's largest financial institutions, large non-bank mortgage originators, and other financial services providers who have violated the consumer protection statutes," and enforce the rules.
Warren isn't thrilled with the idea of allowing bank regulators -- whose top priority is to ensure the profitability of the nation's banks -- to continue to oversee consumer protection, particularly when the OCC is involved.
"The problem with consumer protection is structure. Our current consumer regulatory process is designed to fail, and if we don't fix it, it will fail again," she said. "In every major dispute between customers and banks, the OCC entered the fray on the side of the banks. Clearly, banks -- not their customers -- were the OCC's primary interest. The idea that the OCC would now be in a position to veto the new consumer agency is shameful.
"If our goal was to take any lessons from the crisis, we would do the reverse: Let's give a consumer regulator a veto over the OCC," Warren added. After all, "it wasn't a consumer regulator who presided over the biggest financial meltdown in generations."
She didn't hold back in singling out the GOP's plan, which the Harvard Law professor and bankruptcy expert said was "pure genius -- for the banks who want to keep running things."
"The substitute language on consumer protection is designed to paper over very real structural problems with a new system that is designed to fail as much as the status quo is," Warren said. "The whole idea of the substitute is to take a bunch of regulators that already failed and throw them in a committee together."
Asked if she thought Republicans such as Senate Minority Leader Mitch McConnell of Kentucky and Richard Shelby of Alabama are trying to protect families from predatory lenders, Warren let loose.
"It isn't possible to protect families and at the same time to paper over the sorts of problems that led to the crisis with just another system that is designed to fail," she said of the duo leading the GOP effort against the consumer agency. "The time has come for choosing."
With Republicans abandoning their effort to prevent Dodd's bill from being considered on the Senate floor (the bill passed a procedural hurdle on Wednesday), senators will soon begin offering and debating amendments.
Shelby hopes to weaken the consumer agency.
"This bill still contains a sprawling new consumer protection bureau that will find and force its way into facets of our economy that had nothing to do with the housing crisis," he said in a Wednesday statement. "This massive new bureaucracy would have unchecked authority to regulate whatever it wants, whenever it wants, however it wants. I am aware of no other arm of the federal government this powerful, yet so unaccountable."
On Tuesday, Shelby told reporters that the agency was "the biggest obstacle" keeping Democrats and Republicans from reaching a deal.
McConnell also has attacked the agency, as has Democrat Ben Nelson of Nebraska.
To dilute the agency's power, Shelby and others will push proposals to give bank regulators more authority to rein it in, like replacing it altogether or giving bank regulators stronger veto authority.
The GOP proposal, for example, calls for the Fed chairman, currently Ben Bernanke, to be one of three leaders atop the consumer council.
"Can someone please ask Ben Bernanke if he actually wants to spend his time serving on that committee?" Warren asked. "How much time does he plan to carve out of his day to think about kickbacks on car loans or payday rollovers?
"Let's give those issues to people who have the time and expertise to deal with them," she added.
Sources who have been in meetings with Bernanke and have heard him discuss these issues privately say it's "very hard to believe that he has any real interest" serving on a consumer council like the one envisioned by the GOP.
Another way Republicans and bank-friendly Democrats will try to weaken the bill's consumer protection provisions is by repealing the portion of the bill that attempts to give states more power in going after big banks that violate consumers. At present, states are largely unable to thanks to an aggressive legal campaign over the past decade by the OCC.
National banks like Wells Fargo, JPMorgan Chase, Bank of America and Citibank argue that it's too difficult and costly to comply with different consumer protection regimes in 50 states, so they need a national standard. The OCC agrees, and also touts the legal precedent set by numerous U.S. Supreme Court decisions interpreting the National Bank Act, the 19th-century law that forms the basis of the nation's banking system.
States and consumer advocates say the OCC protects big banks at the expense of consumers. State officials argue that the OCC essentially allows for consumers to be preyed upon and defrauded. The OCC vigorously denies the accusations.
Warren points out, though, that other industries don't get the special treatment afforded to national banks. In his proposal last summer, President Obama said the bill should end the OCC practice, known as preemption.
"Walmart operates in all 50 states, and it doesn't come to Washington demanding that Congress protect it from state laws that demand workplace safety or environmental standards or anything else," she said.
"Every other industry views compliance with state laws as a minor administrative cost of doing business. The big banks aren't worried about the difficulty of following local laws -- they have lawyers and computers to figure it out. Besides, thousands of little banks do it every day," she added.
In the House, bank-friendly Democrats led by Melissa Bean of Illinois watered down what was initially a strong provision that effectively neutered the OCC's authority to preempt state laws on everything from capping ATM fees to reducing overdraft charges and banning abusive home mortgage loans.
The bill now essentially resembles the status quo. Bean touts her vote on the House bill, which passed in December, as one for reform. So do the other legislators who voted against giving states more authority to crack down on abusive lenders, yet ultimately voted for the bill.
"There were others that thought they could get away with voting for the overall reform package while doing everything they could behind the scenes to hold water for the big banks and earn all those campaign contributions," Warren said. "We're about to find out if any senators want to play those games."
She hopes to find out soon.
"Every day that goes by without a clear set of rules in place to guide our economy into the future is a day that costs us money," she said. "Every credit card, payday loan, car loan and check overdraft that hides another fee or another bizarre interest calculation in the fine print costs American families. Every Too Big to Fail that takes on a little more risk, or leverages up just a little more, or that sucks capital away from another business that doesn't have a government guarantee at no charge costs American families. Every lousy product sold to a family, to a retirement fund, or to a local township costs American families.
"We cannot rebuild a strong and reliable economy without new rules," she continued. "We need those rules now. Not next month, not in six months, not in a year. Now."