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Battle lines are drawn over Obama-era regulator

It has a granite fountain and a bosque of shade trees. And to some rightwing Americans, the new headquarters of the Consumer Financial Protection Bureau is a monument to all that went wrong under eight years of Barack Obama’s presidency.

The budget for the refurbishment of the Washington DC building, at about $363 a square foot, makes it more expensive than the Venetian hotel in Macau or the Palazzo in Las Vegas, on an inflation-adjusted basis.

Critics say that is typical of an agency that emerged as much too powerful in the years after the crisis, when the Dodd-Frank Act gave it jurisdiction over just about every US business that provides some form of consumer credit.

Inside the CFPB’s restored façades, the critics complain, the bureau’s lone director is free to do exactly as he chooses, with little accountability to either Congress or the president.

We’re dealing with a “rogue agency,” said Jeb Hensarling, Republican chairman of the House financial services committee this week, as he outlined a plan to unwind Obama-era reforms that he said were throttling the world’s largest economy.

“Ending the bureaucratic nightmare that is Dodd-Frank . . . is imperative,” said the Republican chairman of the House financial services committee. “America has struggled for too long.”

The CFPB has been threatened before. When the idea of an agency dedicated to protecting people from financial fraud and abuse was first floated in Congress in 2009, the Chamber of Commerce said it would do “whatever it takes” to shoot it down.

Larry Summers, then-director of the National Economic Council, likened the subsequent scare ads — “the government wants to shut down your local butcher” — to the “death panel” talk about healthcare.

But after the Republicans’ sweep of the White House and both houses of Congress in November, the chances of radical changes to the CFPB look a lot stronger. Among Mr Hensarling’s proposed reforms: stripping the bureau of its supervisory powers, making its complaints database private and creating an inspector general to watch over it, appointed by the president.

He also wants to remove the special funding status whereby the bureau receives an automatic handout each year from the central bank, rather than competing in the regular budget appropriations process.

The new entity — renamed the Consumer Law Enforcement Agency — would end up looking like the Federal Trade Commission, Mr Hensarling said: “responsible for actually enforcing the . . . consumer protection laws written by Congress, instead of making up its own law in an unfair, deceptive and abusive manner.”

Bankers generally applaud moves to rein the CFPB in a bit.

Brent Beardall, president and chief executive of Seattle-based Washington Federal, one of 90 or so banks with more than $10bn in assets overseen by the CFPB, says he welcomes curbs on the bureau’s “superpowers”, adding that it appears to be ignoring obvious abuses from non-banks in online lending and payday lending. “They’re far too focused on the minutiae, in the weeds,” he says.

“The pendulum probably swung too far,” says Bruce Van Saun, chief executive of Citizens Financial Group of Providence, Rhode Island. “Banks are spending a lot of time going to the nth degree, when the sixth degree would have been fine.”

There will be court battles for the CFPB, too. One challenge is from Ocwen, a 29-year-old mortgage servicer that last week saw more than half of its $700m market capitalisation wiped off in an instant, after the CFPB announced sanctions. Ocwen has already shot back, saying the CFPB’s action should be dismissed because the bureau itself is unconstitutional.

But if the Republicans really want to neuter the CFPB, they can expect some rough stuff in return.

Several incumbent Democratic senators are facing tough fights for re-election in 2018. They are likely to come out strongly for the bureau, knowing that most of their voters support it. Any action to weaken an agency that has returned nearly $12bn to the pockets of 29m Americans will be “a tough sell”, says Ian Katz, a political analyst at Capital Alpha Partners in Washington.

And Republican challengers will have to reckon with Elizabeth Warren, the former Harvard academic who came up with the idea of the agency a decade ago and who was hired by Mr Obama in 2010 to set it up.

The Democratic senator from Massachusetts, reckoned to be considering a presidential run in 2020, is one of a handful of politicians able to “get on a late-night talk show,” says Mr Katz. As patrons go, “she’s about as good as it gets”.

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