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Test for consumer agency to come

Law Professor David Arthur Skeel

TEXT OF COMMENTARY

Kai Ryssdal: Former Fed Chairman Paul Volcker was on Capitol Hill today talking bank regulation. Mr. Volcker seems to have the president's ear on that topic now. He favors making what is too big to fail smaller and limiting the kinds of risks those banks can take. There's also hope that Congress will create some kind of consumer protection agency, or CFPA.

Commentator David Skeel says you can count on that.


David Skeel: If this sounds surprising, it is. The Federal Reserve doesn't like the CFPA, since the Fed would lose its authority over credit card and mortgage abuses. Neither do banks, which don't want a frisky new regulator looking over their shoulders.

But even the Fed itself now admits that it did a lousy job protecting consumers before the crisis. The stability of the banking system is the Fed's primary concern. So it never made much sense for the Fed to be consumers' regulatory champion.

The CFPA also is an antidote to the widespread anger at the billions of dollars that have been funneled to Wall Street throughout the crisis. It's a chance to finally do something for the little guys. Since the recent Massachusetts vote, there has been rampant speculation that the CFPA might be abandoned. But the Obama administration knows they can't afford to miss this opportunity, and lawmakers know it too.

The real question isn't whether there will be a CFPA. There will be. It's whether the banking industry can pull out the new agency's teeth. They persuaded the House to carve out a huge exception from the agency's authority. Hundreds of community banks will be excluded from its coverage. The key issues in the Senate are whether the senators will agree to this loophole, and what other exceptions will be built in.

The other big question is personnel. The banking industry will fight hard for a regulator who will leave them alone -- for anyone other Harvard Law Professor Elizabeth Warren. Warren was the one who dreamed up the new consumer agency, and she has been a thorn in banks' side for years.

So the real test will be who Warren is working for at the end of the year. If she's working for the CFPA, we'll know that Congress finally put the interests of consumers ahead of banks' profits. If she's still working at Harvard, we'll know that the profits, and the gravy train that runs between Washington and Wall Street, still come first.

RYSSDAL: David Skeel is a professor of Corporate Law at the University of Pennsylvania.

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