Consumer watchdog badgered by US House Republicans

Wed Mar 16, 2011 12:08pm EDT

* GOP lawmakers complain about agency's budget, power

* Elizabeth Warren defends role before House panel

By Kevin Drawbaugh

WASHINGTON, March 16 (Reuters) - Congressional Republicans hammered away at a U.S. consumer watchdog agency they have opposed since its creation last year, criticizing its budget autonomy and scope of authority at a hearing on Wednesday.

Elizabeth Warren, a Harvard Law School professor who is leading the formation of the new agency, defended its mission to protect consumers from predatory financial practices as mandated under the Dodd-Frank reforms.

"We need a cop on the beat that American families can count on," Warren told a House of Representatives panel in her first congressional testimony since being named by the White House to help set up the Consumer Financial Protection Bureau.

As authorities move closer to a legal settlement involving a national mortgage foreclosure practices scandal, Republicans grilled Warren over her agency's role in settlement talks.

"The involvement (of) bureau employees in these discussions raises serious questions," said Republican subcommittee chairman Shelley Moore Capito, who chaired the hearing.

Republicans have complained the CFPB's involvement comes before it has even been fully established. Sources have said the consumer agency is pushing harder than some bank regulators for a big monetary settlement and for principal writedowns on mortgages.

The CFPB, Warren said, will not be a party to any formal settlement. But she added: "I am glad that the consumer agency has been able to provide assistance in this important matter."

Warren has not been formally named the head of the CFPB, a post that requires a nomination from President Barack Obama and confirmation by the Senate. For now, she is serving as a special advisor to Treasury Secretary Timothy Geithner.

"I understand there will be a nomination soon," Warren said when asked when and whether she might be tapped to head the agency. An outspoken critic of banks, Warren has been seen as a problematic nomination given banks' clout in Congress.

The CFPB was set up in Dodd-Frank within the Federal Reserve, with funding from the Fed instead of Congress.

"This agency will be able to act outside the appropriations process, which means it will not be held accountable for its actions," said Republican Representative Ed Royce.

Capito said the agency should be part of the congressional appropriations process, a change many Republicans favor.

Democratic Representative Carolyn Maloney, responding to comments that the CFPB would have unchecked power, said its rules could be overruled by other regulators under Dodd-Frank.

Fifty state attorneys general and several U.S. agencies are probing bank mortgage practices that burst into public view last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.

On March 3, state attorneys general sent banks the outline of a proposed settlement endorsed by some agencies, including the CFPB. The Office of the Comptroller of the Currency and the Federal Reserve, the main banking regulators involved in the discussions, did not endorse the early proposal.

Negotiations have thus far focused on the top U.S. mortgage servicers, including Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Wells Fargo & Co (WFC.N) and Ally Financial.

Warren took on her new role in September, after irritating banks and Republicans as head of the Congressional Oversight Panel that oversaw the bailouts of banks and Wall Street firms amid the 2007-2009 financial crisis. (Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)

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