It is not a foregone conclusion that the CFPA will be established, at least in its current proposed form, and as the memory of the recent financial debacle fades with economic recovery, the impetus to do something dramatic about consumer financial regulation may be tempered by second thoughts.  This is not to say that there was not a serious regulatory failure in the past decade or more.  I spent much of the last week trying to help an acquaintance about to lose her house to foreclosure, a house acquired in 2006 with first and second loans from IndyMac Bank totaling $30,000 more than the purchase price of the house.    

The CFPA as a concept was originally promoted in 2007 by Professor Elizabeth Warren of Harvard, a passionate advocate for consumer protection, and she continues to be a vocal proponent.  Her argument that existing regulators failed to protect consumers from the excesses of the last boom is unassailable, but her claim that a CFPA dedicated to consumer protection will prevent the the kinds of  recent widespread harm to consumers and their families may be wishful thinking. 

Regulators are an arm of the Executive Branch of our government, but are created by Congress.  They are staffed by civil servants, but the leadership is appointed, and thus attuned to the prevailing politics.  In the past decade or more, both political parties embraced the hope of academic free market economics as the proper regulatory (read deregulation) model.  The regulatory bodies climbed on-board that platform and regulated accordingly.  The OCC bragged that it did not adopt regulations but rather relied on the examination process to guide national banks' (in that case) behavior. 

When the bubble suddenly popped Congress was shocked, just shocked, to find out that there was gambling occurring in the establishment, and the regulators responded with a revitalized vigor.  One result was the banning of certain credit card industry practices that had been extant for decades, albeit pursued with increasing eagerness and rapaciousness by issuers during the boom. Regulators were also criticized for permitting the sub-prime bubble to inflate, although the federal government had encouraged the practice for years to extend the benefits of home-ownership to lower income families, which likely constrained the regulators from acting aggressively.  Most of those excesses of wishful thinking or worse have also now been addressed by Congress and the regulators. 

Proponents of the CFPA argue that existing regulators were distracted from their consumer protection responsibilities by their other responsibilities for safety and soundness of their financial institutions, which the CFPA would not have been.  The CFPA would also consolidate efforts and resources, and have a renewed Congressional mandate to protect consumers.  The theory is that a focused and dedicated CFPA will raise the alarm and protect consumers next time. Have no doubt there will be a next time.

I wonder if it will matter whether there is one dedicated consumer protection regulator like the CFPA or many multi-function regulators with consumer protection responsibility (the current model) if the political winds shift again, as they inevitably will.  Under Elizabeth Warren or her equivalent the CFPA will likely be very active, but the CFPA will not be immune from the influence of successor administrations and philosophies of regulation, and cannot be made so.  Of course, in the long run politicians and their appointees move on with their resumes enhanced, and short-term thinking is pretty common in government, and probably won't itself hurt the prospects for the CFPA in Congress.