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Remember “I’m Just a Bill,” that famous educational video about how a proposed piece of legislation in Congress becomes a law? What the makers of Schoolhouse Rock neglected to mention is that they merely described Step One. Next comes Step Two, in which federal agencies decide the law’s specific rules, and how those rules will be enforced, much like filling in a rough sketch with paint.

President Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act, July 21, 2010.

Sometimes there’s even a Step Three, in which Congress tweaks or overturns the law, either in part or in full. This happens mostly after a new party takes control over a house of Congress, and wants to revisit controversial laws passed by their opponents.

It’s hard to think of a contemporary law that’s more important, and more controversial, than the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The controversy reached a new level Monday when President Obama announced his plans to nominate former Ohio Attorney General Richard Cordray to lead the Consumer Financial Protection Bureau, the creation of which was mandated by Dodd-Frank. The move avoids a potentially larger fight over Elizabeth Warren, the combative consumer advocate who was long a favorite to lead the bureau. But the decision to tap Cordray, who is currently the bureau’s enforcement chief, rather than give in to Republican demands to scrap the director’s role altogether, guarantees continued Republican resistance.

[Related article: Obama Taps New Consumer Watchdog]

“Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it,” Senator Richard Shelby, the ranking Republican on the banking committee, said Sunday.

The bureau’s job is to do for mortgages and credit cards what the Consumer Product Safety Commission does for toasters and toys: Prevent companies from selling products that harm consumers.

Many Democrats and consumer advocates say that’s vitally important, since risky mortgages, and related side bets like mortgage-backed securities and credit default swaps, caused the financial crisis. By preventing such abusive practices in the future, and helping all market players stay better informed, Democrats argue, the new bureau will help Wall Street avoid another speculative bubble and inevitable crash.

“I think a lot of the fear about the CFPB is unfounded,” says Pamela Banks, senior policy counsel for Consumers Union. “It’s about making an informed decision based on information you can read and understand and not legalese or gobbledygook, and being able to compare apples to apples when it comes to financial products.”

Many Republicans and banking industry leaders disagree. They say the bureau’s powers extend far beyond making financial products easier to understand, and could prevent companies from creating innovative new products.

“I think it has the potential for being pretty powerful,” says Robert Clarke, former Comptroller of the Currency under Presidents Reagan and George H.W. Bush. “The biggest problem I have with it is I think when you have a focused agency like that, you run the risk of having a bunch of zealots running it who are not the least bit concerned with safety and soundness considerations” of financial institutions.

[Article: How the CFPB Should “Regulate” Credit Reporting and Credit Scoring]

Many Republicans also oppose the bureau because they disagree with Democrats’ assertion that excessive risk-taking on the part of financial institutions—rather than government requirements for banks to give mortgages to low-income people—caused the crisis. From this perspective, the Consumer Financial Protection Bureau attacks the wrong problem, and its new layers of regulation could prevent financial services from creating the one thing that can end this recession: Jobs.

“I think there’s clearly that risk of the CFPB putting credit unions and other small financial institutions out of business,” says Fred R. Becker Jr., president and CEO of the National Association of Federal Credit Unions.

A Two-Pronged Strategy »

Official White House Photo by Lawrence Jackson, via Flickr.com.

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