New fed consumer watchdog fights for agency's life

WASHINGTON -- "Americans are looking for an honest marketplace," top federal consumer official Elizabeth Warren told a House subcommittee looking cut short her work creating the new Consumer Financial Protection Bureau.

Warren is fighting banking industry claims that the agency is too powerful. She is assembling the new agency from a tangle of agencies to patrol credit cards, mortgages and other financial products, many of which failed the American consumer, especially during the banking meltdown.

The Harvard University law professor and longtime consumer advocate was to testify Wednesday before members of the financial institutions subcommittee of the House Financial Services Committee. Top Republicans on the panel and their banking and business allies have complained that the bureau -- which opens its doors July 21 -- has too much power to clamp down on financial instruments it considers unfair. Republicans have said they would like to cut the new agency's budget.

"Americans are looking for an honest marketplace," Warren said in her prepared testimony released before her appearance, adding, "Today, few of us seriously believe that we have the marketplace that American families deserve."

The bureau was created by the legislation overhauling the financial markets. It was signed this past summer by President Barack Obama.

Republicans say the law gives the agency too much power because its money comes from the self-financed Federal Reserve without any congressional controls; because by law it can regulate products it considers "unfair, deceptive or abusive," terms they consider too vague; and because it is headed by a single, presidentially appointed director, and not a bipartisan commission like some other agencies.

House Financial Services chairman Spencer Bachus (R-Ala.) earlier this month called the bureau "perhaps the single most powerful agency ever created by an act of Congress."

Bachus was preparing to introduce a bill with Rep. Shelley Moore Capito (R-W.Va.) that would replace the director with a five-person commission with members from both political parties, according to a document obtained by The Associated Press.

Hoping to restrict its power, the House voted earlier this year to limit the bureau's budget to $80 million this year, well below the $143 million Obama wants. The Democratic-run Senate and Obama are unlikely to accept that reduction.

Calling oversight is "deeply important," Warren told the committee that the bureau is answerable to lawmakers and the courts. "As is true with respect to all other federal agencies, Congress has the last word on CFPB rule-making," she said, using the bureau's acronym. "If Congress is unhappy with a rule, it can overturn it."

She also said creation of the bureau increased accountability because the law gave it powers that previously were spread among seven agencies.

"The tangle of seven agencies failed to create effective rules and left gaping holes in oversight," she said.

Obama is not expected to nominate Warren as director because she seems too controversial to be approved by the Senate. He could appoint her to the job during a congressional recess -- which would not require Senate approval but would give her the job only through 2012.

Warren, who championed the agency before it was created, has also run afoul of Republicans following reports that she has been advising federal agencies and state attorneys general pursuing big banks. Earlier this month, the government officials gave five large banks a list of demands that would curb their ability to start certain foreclosures and make it easier for struggling homeowners to modify their mortgages.

In a written statement Tuesday, Warren said the bureau was invited to provide advice.

"We're happy to help where we can, particularly in light of our responsibilities to protect consumers in the mortgage servicing marketplace in the future. We are always ready to be a voice on behalf of American families."

The bureau is chiefly designed to give consumers simplified information about financial products and protect them from unfair practices. Priorities Warren considers important include regulating mortgages, credit cards and non-bank financial companies like mortgage brokers, payday lenders and private providers of student loans.

As part of an effort to assuage critics, Warren said she has met with over 60 members of Congress and dozens of executives of financial institutions, large and small, across the country.

She also said the bureau will move next year to a new headquarters across the street from the White House. In her prepared statement, she said, "We want the CFPB to have a very tangible presence for anyone who visits Washington."