Only in Washington is reform needed for something not even fully formed. Republicans seek to correct the shortcomings of the broad financial regulation passed this summer. One of their major targets is the consumer financial protection bureau. Top Republican lawmakers are already calling for investigations of the agency, even though it hasn't really begun functioning yet. Still, the bureau may be a legitimate candidate for reform so how should Republicans approach such a task?

Don't Try to Do Too Much

For starters, they shouldn't spend too much time trying to do anything too aggressive. For example, there's no point in wasting countless hours drafting talking points and legislation which would kill the bureau altogether. There's zero chance a Democratic Senate and White House will allow that to happen. Indeed, it will also probably look bad politically if Republicans lead a crusade to kill a bureau that most Americans likely believe is meant to protect them. Such a strategy would do Republicans more harm than good.

Identify Real Problems

Instead of trying to kill the bureau, they should work to fix some of its very real problems. For example, the director of the watchdog has entirely too much power. The House's original version of the legislation would have created a group of commissioners appointed to share the responsibility of running the Bureau, while the Senate's version gave almost all of the power to one individual. The final bill mostly took the form of the latter. That's too much power for one bureaucrat to wield.

Another legitimate concern would be Elizabeth Warren's role of the bureau's architect without Senate confirmation. Whether you like or dislike Warren, it's hard to defend the move to provide her with such an incredible responsibility without the Senate confirming her for that role.

A final example could be a Republican concern about the bureau voiced during the financial regulation battle. They worried that it would have priority over systemic regulation. In theory, that could mean that poorly conceived financial rules would be put ahead of rational ones, in the name of consumer protection. New legislation could eliminate this potential problem.*

Strengthen Reasonable Objectives

Moreover, Republicans could act to actually strengthen certain characteristics of the bureau that make a great deal of sense. For example, the bureau hopes to increase financial education for consumers. One problem during the housing bubble was that some Americans didn't understand the mortgage products they were buying. In that case, the banks might blame the consumers for not knowing what they were signing. Republicans shouldn't merely regurgitate that weak claim, however. Instead, they should argue that Americans need more knowledge about financial products in general, so the government doesn't need to rely on paternalistic regulation limiting their choices.

Another bureau objective that Republicans might embrace could be to strengthen its power to set mortgage underwriting standards. For example, it could insist that borrowers pay a minimum down payment percentage -- something they also argued for during the regulation battle. Republicans can insist that the bureau forbid economically harmful financial products, like zero-down mortgages, even if it limits their reach.


The consumer financial protection bureau could be just an area where the Republicans do a lot of talking, while making no real progress due to their minority in the Senate and inability to sway the White House. But if they offer rational, productive reforms, then Democrats will have a hard time saying "no." Of course, practical proposals would also benefit the American people far more than partisan politics.


* Update: After posting this I was reminded that there is, in fact, some language in the financial regulation bill that hopes to correct this problem. The systemic risk council can veto CFPB rules if they conflict with prudential regulation. So if that mechanism works as anticipated, this should not be an issue, but does serve as an example of the kind of problem that Republicans might legitimately seek to correct.

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