Bloomberg View: Get Behind the Gang of Six; Obama's Right on CFPB

Get Behind the Gang of Six • Obama Is Right to Fight for a Strong CFPB


Six stalwart U.S. senators delivered the outlines of an intelligent and ambitious deficit-reduction proposal on July 19. Although the details are not all clear, the senators say the plan would reduce deficits by $500 billion immediately and by $3.7 trillion over 10 years. It would overhaul entitlements, in part by switching to a so-called chained consumer price index to calculate benefits. It would tighten the budget process using triggers and enforcement mechanisms to protect against lawmakers with an itch to spend. And it would move toward a simplified and pro-growth tax code.

Enthusiasm expressed by senators not involved in the talks suggests there may be enough votes for passage in the Senate. The House will be a problem, perhaps an impossibility. To make the odds longer, it’s unclear how the plan might overlap with various proposals to increase the debt limit. But there’s reason for hope. Even staunch House conservatives should agree with the scope of the package’s budget cuts. They should also find its tax changes appealing: The plan would cut the top individual tax rate to 29 percent from 35 percent, establish a single corporate rate and change how foreign income is taxed, eliminate the alternative minimum tax, and bring in $1 trillion in new revenue over 10 years by reducing tax breaks.

The senators say it will amount to a net tax cut of $1.5 trillion. We’ll know more when all the details are released. The Gang of Six, if nothing else, has taken admirable steps toward shared sacrifice. Even as the plan was making the rounds, House Republicans were debating an ill-advised balanced-budget amendment that stands no chance of becoming law, a dangerous distraction from the critical task of raising the debt ceiling. If the Senate plan is part of a last-minute grand bargain that helps prevent a government default, all the better. On its own, it’s a work of substance that could eventually guide us in solving our long-term budget woes.


President Barack Obama finally made official what everyone in Washington had assumed for months: Harvard law professor Elizabeth Warren, who first had the idea for a consumer financial protection agency, will not oversee her creation. Instead, the President has nominated Richard Cordray, the former Ohio Attorney General now running enforcement at the Consumer Financial Protection Bureau.

Warren, an irritant to the big banks, was never going to get the 60 Senate votes needed for confirmation. Cordray, a smart, aggressive prosecutor, may not fare much better. By going with Cordray to run the bureau—created to oversee the sale of consumer financial products, from the fine print in mortgages and credit cards to rates charged by payday lenders to overdraft fees on checking accounts—Obama seems ready for a gloves-off fight with the financial industry and its Senate allies.

This battle is likely to be waged over obscure accountability and structural issues. In a May letter to Obama, 44 Republicans pledged not to confirm a nominee unless the director is replaced by a board of directors, the agency is subject to Congress’s appropriations process, and new checks and balances are in place to prevent excessive bank regulation. The President should resist all three demands.

The GOP senators would do away with the idea of a director and recast the consumer bureau in the mold of the Securities and Exchange Commission, with five commissioners split between Democrats and Republicans (and the party controlling the White House naming the chairman, and, in theory, exercising control).

This would be a mistake. The consumer bureau, which inherits supervision duties from seven federal agencies, was designed to move quickly (like the Federal Deposit Insurance Corp.) and not ploddingly (like the SEC, where three commissioners must pre-approve nearly everything the agency does).

Subjecting the bureau to the congressional appropriations process also would be a mistake. The bureau was meant to be insulated from the partisan funding fights that have hamstrung the SEC, the Commodity Futures Trading Commission, and other regulators. Financing the bureau through the Federal Reserve—which in turn is funded through its open-market operations and by the institutions it supervises—is the surest way to stop lawmakers from starving the bureau of resources.

No question, the bureau should not be able to issue rules willy-nilly. Concerns in this realm are most always justified. But the Dodd-Frank law has safeguards that prevent the bureau from harming the overall economy or threatening the safety of the banking system. For example, anyone on the so-called council of regulators—it includes the heads of the FDIC, Federal Reserve, and SEC, along with the Comptroller of the Currency and six others—may temporarily stop any bureau rule simply by asking the Treasury Secretary, who chairs the council, to do so.

In addition, the council can permanently halt an objectionable rule with a two-thirds vote. And if another regulator objects in writing to a bureau proposal, the CFPB must publicly explain why it’s going ahead anyway. The act of having to justify itself will be a powerful deterrent against blunderbuss moves.

The consumer bureau, to be effective, needs all the agility and muscle that the Dodd-Frank law meant it to have. Although it’s bigger than any one person, the bureau by law must have a confirmed director to issue new rules and oversee nonbank firms such as payday lenders. The Senate should move ahead on the Cordray nomination with all speed. After all, it’s in the industry’s best interest if consumers can understand what they’re buying.

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