Test Fight for Obama's New Populism: Consumer Financial Protections

So President Obama wants to be a populist fighter? In the past two weeks, he's proposed slapping the big banks with a bailout tax and implementing restrictions on financial institutions' casino-like activities. He'll probably have to fight like hell to make all this happen, for Big Finance and its lobbyists are not going to play dead or play nice. And there's another important battle-line where Obama may have to engage in rough combat with the big-money crowd: establishing the Consumer Financial Protection Agency.

The CFPA is the brainchild of Harvard law professor Elizabeth Warren, who heads the Congressional Oversight Panel, which monitors the $700 billion TARP bailout program. This agency would protect consumers -- that is, you -- from the tricks and traps of abusive lenders, such as banks, credit card companies and other financial institutions. House Democrats last year passed legislation that would set up a slightly weakened version of the CFPA. (It would not be able to go after car dealers, as if that's the one group of lenders that can be trusted.) But the Senate has yet to act. And earlier this month, Sen. Chris Dodd, the Democratic chair of the banking committee, floated a trial balloon, suggesting that the CFPA be scrapped in favor of creating a pumped-up consumer protection division in some pre-existing federal agency. Dodd's goal is to try to win GOP support for a financial reform package. But sacrificing the CFPA -- one of the few components that real folks can fully understand -- would be a mighty big price to pay.

Which brings us to Obama and fighting. On Wednesday, Warren was in David Axelrod's office in the White House, urging the administration to go to the mat for the CFPA. She was told that Obama is "ready for this fight," according to one person familiar with the conversation. And White House aides pointed to an exchange I had earlier in the day at the daily briefing. I had asked press secretary Robert Gibbs if Obama had conveyed to Dodd that he would be angry if Dodd dropped the CFPA. Gibbs had replied that Obama believes "financial reform has to include a consumer protection agency."

That heartened Warren. She wants a strong agency. But she also had a stark message for the White House: no agency would be better than a watered-down agency.

If Dodd proceeds with a package that includes the CFPA, there's the possibility that deal-making within the Senate Banking Committee could result in an agency that is essentially toothless. At the moment, the future of the CFPA -- which Republicans and the financial industry have blasted -- is being discussed in behind-closed-doors negotiations being held by members of the Senate Banking Committee.

Warren encouraged White House aides to not allow the CFPA to be compromised to death. She has a good argument. With the health care reform tussle, one can contend that a compromise bill -- say, a measure that extends insurance coverage to 20 million, rather than 35 million -- is preferable to no legislation, for such a bill would help those 20 million. What's different with the CFPA is that a compromised version -- an agency without real power -- would create the illusion of a solution while permitting Big Finance to continue to screw consumers.

There are plenty of government agencies that already have the authority to regulate financial institutions on behalf of consumers. The problem is, they don't want to. After all, regulators at the Federal Reserve and other regulatory agencies that oversee banking have long been too close to their targets: the banks. The point of setting up the CFPA is to create an independent agency that has a clear mission: protect consumers from the abusive practices of financial institutions -- and to be a hard-ass about that. Creating a consumer protection unit in a larger government agency that often engages in hand-holding (or worse) with the big banks would be counter-productive. And if such a compromise does emerge from a Senate backroom, lobbyists and legislators who actually oppose oversight will no doubt support it and declare reform has been achieved. A deception like this would be worse than a situation that yields no CFPA.

So if the Senate does yank teeth out of the CFPA, Warren wants Obama to fight like mad. (A recent Boston Globe op-ed article raised the notion of the straight-talking and from-humble-roots Warren running for Senate in Massachusetts against Scott Brown in 2012.) Pushing for a fierce CFPA shouldn't be a tough battle. In fact, it would be an easy campaign for any president yearning to prove his populist mettle. Obama could pose a simple question: Do you want your senators and representatives voting to protect the big banks and credit card companies or not? Even if Obama lost such a face-off in the Senate, he would demonstrate his willingness to swing at Big Finance and he would define the opposition (presumably mostly Republicans) as handmaidens to the big banks, which are not very popular these days.

Was it a coincidence that Warren was talking to White House aides the day after the Democrats lost the special Massachusetts Senate race, as Obama was pivoting in a more populist direction? Democrats who do want to see Obama throw some populist punches ought to hope not -- and hope that he embraces Warren's advice.

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