Reform bill gives birth to $550-million consumer bureau

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The Consumer Financial Protection Bureau will spring to life with an annual budget of up to $550 million — an amount that dwarfs yearly spending by other consumer-focused agencies such as the Federal Trade Commission and the Consumer Product Safety Commission.

The new agency, one of the most controversial pieces of the landmark financial reform bill approved today by the Senate, has a wide-ranging mandate to police credit and lending products such as bank credit and debit cards, home mortgages, private student loans, payday loans, and overdraft loans. Housed within the Federal Reserve, the bureau will have an independent director subject to Senate approval before serving a five-year term.

Many Republicans opposed creating the CFPB, saying it was not needed as part of a Congressional package to prevent another meltdown in U.S. banking and financial markets. More government will lead to dozens of new, costly rules for both large and small businesses, they say.

But Democrats who backed the CFPB made sure the new agency is generously funded and not dependent on annual budget requests to Congress. Under the bill, the CFPB will get up to 10 percent of the total operating expenses of the Federal Reserve System in fiscal 2011, rising to 12 percent in fiscal 2013. If needed, the agency also can ask for up to $200 million more through the annual Congressional appropriations process.

That means a CFPB budget in the range of $450 million to $550 million, according to Travis Plunkett, legislative director of the Consumer Federation of America.

By comparison, the Consumer Protection Safety Commission has an annual budget of just $118 million to oversee some 15,000 types of products ranging from baby cribs to computer batteries. And the Federal Trade Commission, which protects consumers against unfair, deceptive or fraudulent advertising and marketing practices, has a total budget of around $292 million to spend on consumer protection as well as the antitrust matters it polices.

The safety of most domestic and imported food is the responsibility of the Food and Drug Administration, which budgeted $784 million for those activities in the current year.

Included in the CFPB’s birth certificate is the power to order up research on loan delinquency trends, default rates, consumer access to credit, and other issues to guide its work. And the agency’s regulations can be vetoed by the new federal systemic risk council that was also created by the legislation — but only if they threaten the stability of U.S. financial markets.

"It’s a major new agency that is well-funded, that is autonomous for the most part, that has broad power, and could make a huge difference for consumers in the financial services marketplace,” said Plunkett of the Consumer Federation of America. “Basically, the Fed is just a mailing address for the CFPB."

The CFPB’s generous budget has been a lightning rod for Republicans who oppose the new agency and say its budget could be much higher than Plunkett’s $550 million estimate. They are also concerned that the new agency’s structure gives its director too much power.

"It’s a single person with an $850 million, un-oversighted revenue stream," said Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee. "Basically, the person just gets the money and can go off and do whatever they want."

However, compromises during the bill-writing process did pare back the authority of the new agency. Auto dealers successfully lobbied to specifically exclude car financing and loans from the CFPB’s jurisdiction. And credit cards and mortgages made by banks with less than $10 billion in assets are likewise outside the agency’s reach.

Another Republican, Sen. Bob Corker of Tennessee, also complained about the structure of the CFPB and the agency’s broad mandate.

"I am all for consumer protection… the concern I have is we created a new entity that has no board," Corker said during Senate debate of the reform bill. "One person is going to decide the nature of what this organization is going to engage in. I just find that incredible."

A favorite among some Democrats for the top job at the CFPB is Elizabeth Warren. The outspoken Harvard law professor now leads a Congressional oversight panel reviewing the financial regulatory system to assess the Treasury Department’s actions to stabilize the economy, mitigate foreclosures and improve market transparency.

"Just as Joe Kennedy was essential to the Securities and Exchange Commission in making it a vigorous regulatory agency in the 1930s, this appointment will be that important for the Consumer Financial Protection Bureau," said Plunkett.