New US Consumer Bureau Likely To Be Hobbled On Day One

The U.S. consumer protection agency so central to last year's financial-regulatory overhaul will almost certainly begin its life temporarily hobbled, operating without a director or broad new powers to prevent fraudulent and abusive financial practices.

The White House is struggling to install a director before the Consumer Financial Protection Bureau officially opens its doors in mid-July. Failure to get a confirmed director will represent a significant--if short-lived--victory for the agency's fierce critics.

Under the Dodd-Frank financial law, the agency must have a confirmed director to gain many of its newfound powers, such as policing non-bank financial firms like payday lenders. But politics are complicating the White House's ability to get someone in place in time for the deadline.

Without these powers, the agency touted by President Barack Obama as "one of the central aspects" of Dodd-Frank, would be weaker than intended, and it could spend its critical start-up year facing legal questions about the scope of its powers.

Also, bankers and investors seeking more clarity about the new regulatory environment would have to wait longer. Already, some bankers are showing signs of fatigue with the partisan battle in Washington. U.S. Bancorp (USB) Chief Executive Richard Davis, at a banking conference on Monday, was upbeat about the future of consumer banking but said he worries about the level of uncertainty facing the industry.

"I want it to get up and running," he said of the consumer bureau, adding that he wants the bureau to be able to regulate the various non-bank lenders that compete with banks but largely escape federal regulation. Even banks that opposed the creation of the bureau considered the move to put non-banks under the same regulatory umbrella as a positive for the banking industry because it would level the regulatory playing field for all kinds of financial firms. However, without a director, the bureau will not have the authority to oversee non-bank firms.

The White House is considering tapping Raj Date, an ex-Wall Street executive who is a top adviser to the bureau's chief architect, Elizabeth Warren, to head the consumer agency. The president's "goal remains to have a director in place by July 21," said a White House spokeswoman.

Republican senators have effectively blocked Obama's chance to nominate a director, with 44 lawmakers saying last month they will not confirm anyone as director unless structural changes are made to the agency.

The White House, unwilling to concede to the changes, could bypass the confirmation process and appoint a director while the Senate is in recess. Such a move would spark controversy and political observers say the administration likely will not do so until it reaches agreement with Republicans over another contentious issue--raising the federal debt limit. Also, senators could try to use procedural moves to try to prevent the Senate from recessing in July and August. Stifling the bureau would be a major feat for GOP critics who have been fighting to blunt the agency's powers and roll-back Dodd-Frank. The bureau's critics argue that the agency is an unnecessary bureaucracy with too much sway over banks. Consumer groups and liberals see the agency as much-needed cop to protect families from banking tricks that spiraled out of control in the run-up to the financial crisis.

Wayne Abernathy, an executive vice president at the American Bankers Association, said there are "definitely legal issues if there is no director" come July 21 but "there's disagreement as to just how nasty the legal problems are." He added, "Our own belief is that we're not sure there's much the bureau can do without there being an officially appointed head." The industry group, a critic of the bureau's "broad" authority, is concerned that the agency will hurt banks with burdensome regulations.

A government report released in January said the consumer bureau could still write certain rules and supervise banks and credit unions that have more than $10 billion in assets but it couldn't ban "abusive" financial practices or oversee pay day lenders and other nonbank firms.

The Obama administration, which has been locked in crucial battles with Congress over federal spending, has failed to formally announce its pick to lead the fledgling agency. It's a silence that has frustrated some of the agency's most vocal supporters, including House Democrats and progressive groups, that want her to head the agency.

But Warren, a consumer advocate who has battled banks on issues related to bankruptcy and credit card practices for decades, has also sparked Republican ire.

"Love her or hate her, Warren is still a polarizing figure on Capitol Hill," said MF Global Inc.'s Jaret Seiberg. "The problem is she's become the symbol of Dodd-Frank's overreaching."

Senate Republican Leader Mitch McConnell (R, Ky.) recently made clear that the GOP is "pretty unenthusiastic about the possibility of Elizabeth Warren" and equally unexcited about the new agency, which he said "could be a serious threat to the financial system."

On the other side of the issue, consumer groups, and even some bankers, are urging Obama to act swiftly.

"They waited so long to nominate a director that they risk this agency having its hands tied when it opens its doors," said Consumer Federation of America Legislative Director Travis Plunkett.

-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687, maya.jackson-randall@dowjones.com

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