Consumer Financial Protection Bureau official responds to critics

The general counsel of the months-old Consumer Financial Protection Bureau defended his colleagues from conservative critics who portray his agency's regulators as champions of "bureaucratic pathologies" whose "unchecked power" will damage the country's lending industry.

Leonard Kennedy, who came to the CFPB implementation team from Sprint Nextel Corp., said the bureau's employees are "committed to doing our best to make wise, pragmatic decisions affecting people's wealth," adding he finds characterizations of the bureau as politicized and dogmatic to be "abhorrent."

Kennedy spoke during a Friday luncheon panel on CFPB -- which is operating with an acting director because President Obama's nominee, Richard Cordray, has been blocked by Senate Republicans -- at the Federalist Society's National Lawyers Convention in Washington.

Todd Zywicki, an economist and law professor at George Mason University, told the audience that "if you sat down and designed an agency with all the pathologies of bureaucracies, the CFPB would embody it." Calling the bureau "the most powerful in U.S. history," he said it behaves as if it were "frozen during the Nixon era and sat out the past 30 years." He said CFPBs directorship and independent status within the also-independent Federal Reserve means it has no oversight and will exacerbate the current reluctance of the banking industry to lend money.

The legitimate need for new thinking on regulating access to mortgages and simplifying loan application forms, Zywicki added, would have been better placed in the Federal Trade Commission.

Alex Pollock, a resident fellow at the American Enterprise Institute, said the law creating CFPB -- the 2010 Dodd-Frank Financial Reform Act -- is "best characterized as the faith in bureaucracy act." He said the CFPB controversy embodied a major clash of political philosophies about the role of government and the abilities and motives of human beings. Pollock also criticized the way Congress funded the new bureau via the Federal Reserve, calling it a "device" that was rushed through in the summer of 2010 by Democrats who knew they would take losses in the coming elections and who "made sure the will of the people couldn't take it away."

CFPB was defended by David Berenbaum, chief program officer for the National Community Reinvestment Coalition, who said the bureau was practicing transparency by inviting industry representatives into rule-makings. He said the long-standing "credentialed" regulators had failed to spot bad loans during the 2007-2008 financial crisis and without CFPB, no agency would be looking out for the consumer loan interests of blacks, Latinos and elderly Americans.

Kennedy's comments were notable because few CFPB officials have spoken in public in light of the ongoing congressional stalemate over its future. He said the bureau's mission is to provide "robust services on behalf of the consumers so they become better consumers."

The financial crisis "came close to bringing the collapse of our economic system, and it was not hard to imagine that ATMs would cease to work, checks stop working, credit cards are refused and commerce grinds to a halt," Kennedy said. Citing the recent bankruptcy filing of MF Global Holdings, he added, "Those forces are still with us and we felt the animal spirits needed taming."

He invoked Founding Father Alexander Hamilton as "an enthusiastic supporter of what then must have seemed like 'big government,' " citing the first Treasury secretary's efforts to create the first national bank, the U.S. Mint, the first tariffs, the precursor of the U.S. Coast Guard, and the first excise tax, which was met by Pennsylvania farmers in the Whiskey Rebellion.

"Hamilton would be amazed today to see cross-border financial interests that are too big to fail and an insurance company that could become so highly exposed, it risked tanking the whole economy," Kennedy said.

Were Hamilton alive today, he continued, "he would say we need regulatory vigilance and a competent national government, [but] as a regulator he would be humble about what has worked before."

Calling himself a deregulator who was influenced by Carter administration-era academic theorist Alfred Kahn, Kennedy said, "regulations need to be no more intrusive than necessary, but strong enough to get the job done."

Kennedy said his colleagues come from "all corners and sectors of the economy, from academia and from law firms," many of them giving up prestigious titles and money "to give something back." Far from "believing they have received wisdom about how the system does or does not work," CFPB regulators "start every conversation asking, What does the law say, what do the other laws say, what has the Supreme Court said?" he said. They think about the industry because "they know that if the regulations don't work for the country, the economy could get worse."