WASHINGTON — The ill will generated between Democrats and Republicans in the controversy over appointing an acting chief for the Consumer Financial Protection Bureau adds a new wrinkle to congressional talks over a bipartisan regulatory relief deal.

The Senate Banking Committee is scheduled to vote Tuesday on the targeted relief package, worked out between Chairman Mike Crapo, R-Idaho, and four moderate Democrats. The bill is expected to pass the panel easily, and it currently has nine Democratic cosponsors — along with Independent Angus King, who caucuses with the Democrats — that is enough to vote the bill out of the full Senate. Yet the deal was worked out before the politically charged war of words between Democrats and Republicans over who will run the CFPB.

Senate negotiators are still confident the bipartisan coalition will hold, but analysts say the CFPB turmoil — triggered by former Director Richard Cordray’s attempt to handpick an acting successor followed by President Trump’s countermove installing Mulvaney — has left Democrats vexed and could affect how many votes the reg relief bill ultimately gets.

Senator Mike Crapo, a Republican from Idaho and chairman of the Senate Banking Committee, makes an opening statement during a hearing in Washington on the Equifax cybersecurity breach.
Banking Committee Chairman Mike Crapo said a reg relief deal will not be affected by the CFPB leadership struggle. “The CFPB issues have been out there all along, this is another aspect of that but I don’t think it would impact that." Bloomberg News

“For members on the fence about whether to support this deal, the president’s decision to create this drama and appoint a White House official as acting director of CFPB … will provide one more reason to oppose the legislation,” said Aaron Klein, policy director at the Center on Regulation and Markets at the Brookings Institution.

Crapo ended up cutting a deal with moderate Democrats — including Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota, Jon Tester of Montana and Mark Warner of Virginia — after his talks broke down with Sen. Sherrod Brown, D-Ohio, the committee’s ranking member.

The resulting deal makes limited changes compared with a more ambitious House reg relief proposal, proposing noncontroversial measures such as simplified capital rules and a higher asset threshold for banks considered “systemically important.” The only CFPB-related provision is allowing more loans to be “qualified mortgages” under the bureau’s underwriting rules.

Yet the spirit of bipartisanship reflected in the deal was in contrast to the events that started Nov. 24. Before leaving his perch, Cordray tapped his chief of staff, Leandra English, to be the deputy CFPB director, a position that assumes the acting director slot under the Dodd-Frank Act. But the Trump administration cited the Federal Vacancies Act in appointing Mulvaney, a move that was challenged by English.

Prominent Democrats immediately leapt to English’s defense. As Mulvaney worked out of the CFPB’s office at the beginning of the week, English attended a photo shoot on Capitol Hill with Senate Minority Leader Chuck Schumer and Sen. Elizabeth Warren, D-Mass., the CFPB’s original architect. The back-and-forth was seen as hurting the cause of bipartisan reg relief.

“The White House is needlessly provoking a fight with congressional Democrats at the very same time that the Senate is trying to advance a deregulatory bill for banks,” Cowen analyst Jaret Seiberg said in a Nov. 27 note to clients.

“It is hard to see how a bank deregulatory bill can advance while this fight is raging,” he added.

Yet the legal fight simmered Tuesday when United States District Judge Timothy Kelly ruled in Mulvaney’s favor, and key senators working out the reg relief deal insist nothing has changed.

“I don’t think it would affect that,” Crapo said in an interview when asked if the fight over the CFPB would affect the prospects of the regulatory relief deal. He noted that a broad policy debate about the CFPB structure is nothing new. “The CFPB issues have been out there all along, this is another aspect of that but I don’t think it would impact that,” he said.

Marneé Banks, communications director for Tester, who co-sponsored the bill, agreed, saying in an email, “The CFPB issues shouldn’t impact anything related to the regulatory relief bill.”

“Sen. Tester is pleased with the overwhelming bipartisan support for the bill and is hopeful it will pass out of Committee,” she said.

Financial services lobbyists, meanwhile, are not expecting any surprises from Tuesday’s markup of the bill.

“There will be some fireworks, but I think the votes should be pretty certain from the people that are committed to the legislation,” said Paul Merski, executive vice president of congressional relations and strategy at the Independent Community Bankers of America.

“It should pass very easily out of the committee,” he said.

Klein of the Brookings Institution said the bill’s negotiators have been serious about finding common ground, which could protect the deal from outside distractions.

The process of substantive negotiation and good-faith bargaining will give the bipartisan Senate bill some degree of immunity from the CFPB acting director drama,” he said.

Yet the controversy may make it difficult for the bill’s support to expand further among Democrats, particularly among progressives such as Warren and Brown.

The previous talks between Brown and Crapo had broken down, and Brown has still not signed off on legislation, because the Democrat wanted to the bill to go further in adding consumer protections rather than just rolling back bank regulations. Brown has also been outspoken against Mulvaney’s appointment. He, Warren and others may raise their concerns about the CFPB as their counterparts vote to roll back bank regulations.

Progressives see Mulvaney’s appointment “cobbled with the [legislative] markup … as a kind of this joint attack on the bureau,” said Scott Astrada, director of federal advocacy at the Center for Responsible Lending. “We are seeing not only the banking bill but the whole picture.”