Cordray’s Confirmation Unleashes U.S. Consumer Bureau Powers
The U.S. Senate confirmation of Richard Cordray as director of the Consumer Financial Protection Bureau ends an almost three-year fight that cast a pall over the agency created by the 2010 Dodd-Frank Act.
The 66 to 34 vote yesterday lifts the threat of legal challenges to the bureau’s rules and enforcement actions since some of the agency’s powers, including those over non-bank financial firms, take effect only under a confirmed director. Cordray was sworn in to the office by Vice President Joe Biden today, the White House said.
“The political stalemate is over,” said Senator Elizabeth Warren, the Massachusetts Democrat who conceived the idea for the agency and was President Barack Obama’s first choice to lead it. “There is no doubt the consumer agency will survive beyond the crib.”
Banks and financial firms opposed creation of the bureau, which was established with the explicit aim of regulating the kind of risky consumer financial products that contributed to the 2008 financial crisis. Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington, said he expects the agency to remain a lightning rod for controversy.
“Cordray’s confirmation will remove a meaningful operational cloud that has hovered over the CFPB for three years, but there is no reason to believe that the political rhetoric surrounding the agency will subside,” Boltansky said in an e-mail.
Senator Bob Corker, a Tennessee Republican, said he would still push for changes to the consumer bureau’s structure that he said could come when his party is in the majority. The next round of Senate elections are in November 2014.
“There wasn’t any way to make it happen prior to this nomination coming up,” Corker said in an interview. “There’s a possibility that some additional structural changes take place.”
Senator Jeff Merkley, an Oregon Democrat, said the Senate deal ensures that the consumer bureau will take shape as the authors of Dodd-Frank intended.
“For two years, since it was formed, there has been a battle over whether it would be fully formed and become a part of the landscape, the executive branch landscape, defending the rights of Americans against predatory practices,” Merkley told reporters. “That question is answered today.”
Republican senators refused for more than two years to permit a confirmation vote on Cordray, demanding that the bureau be restructured in ways that would reduce the director’s power and place congressional controls over the agency’s budget.
“They don’t like the fact that this first-ever financial watchdog with the explicit mission of protecting consumers instead of bankers is doing exactly what it is supposed to,” said Lisa Donner, executive director of Americans for Financial Reform, an umbrella group of labor unions, civil rights groups and consumer advocates.
Over the last three years, Republicans accused the agency of being unaccountable and overly powerful, spending too much money, and collecting too much data on American consumers.
All the same, the agency remained popular with the public, and Warren’s role in setting it up heightened the bureau’s profile. Its positive image was in part a function of the unpopularity of the large banks that got federal bailouts during the financial crisis, according to a new poll by Washington-based Lake Research Partners.
Eight in 10 voters support the work of the CFPB, according to the poll, which was conducted among 1,004 likely voters from July 8 to 11, and has a margin of error of plus or minus 3.1 percentage points. Public support cuts across party lines, the poll found, with 91 percent of Democrats, 71 percent of Republicans and 79 percent of independents backing the agency.
Through enforcement actions against companies including Capital One Financial Corp. (COF), American Express Co. (AXP) and U.S. Bancorp, the consumer bureau has returned more than $432 million to consumers. It has also set up a system for registering complaints with banks, student lenders, credit bureaus and debt collectors, a tool that at least 125,000 people have used since its inception in July 2012.
The agency has also written rules aimed at cleaning up the mortgage market that was at the heart of the financial crisis. The new regulations cover underwriting, servicing and loan officer incentives.
Cordray, the agency’s first enforcement chief, was nominated twice and waited more than 700 days for a Senate confirmation vote. In exchange for proceeding with Cordray’s confirmation, Obama agreed to nominate two new candidates to the National Labor Relations Board.
With the confirmation, the consumer bureau will be able to exercise its full authority over large banks and certain non-bank financial firms, including payday lenders and mortgage originators.
Richard Hunt, president of the Consumer Bankers Association, said having a director in place for the five-year term envisioned by Dodd-Frank means that “nothing stops the agency” from doing what it wants.
“There is potential to overreach here, and it has nothing to do with Cordray,” Hunt said in an interview.
Dodd-Frank gave the bureau authority to supervise banks with more than $10 billion in assets, a group that includes JPMorgan Chase & Co. (JPM) and Lafayette, Louisiana-based Iberiabank Corp. (IBKC) It can also write regulations and enforce laws to protect consumers from abusive practices.
Michael Thurman, an attorney with Loeb & Loeb LLP in Los Angeles, said confirmation would “eliminate any doubts” about the agency’s authority. Cordray, a former Ohio attorney general, will use it, he said.
“Given that the CFPB has an extensive enforcement staff, including numerous experienced regulatory attorneys and paralegals, companies subject to CFPB jurisdiction should expect that CFPB enforcement activity will substantially increase in the immediate future,” Thurman said in an e-mail.
Obama first nominated Cordray in July 2011 after it became clear that Warren would not win Senate confirmation. After a first Senate procedural vote failed in December that year, Obama installed Cordray in the director post in January 2012 using a so-called recess appointment, which bypasses Senate confirmation.
Later this year, the Supreme Court is expected to hear a legal challenge to recess appointments Obama made the same day to the NLRB, a case that critics said could have been used to invalidate Cordray’s appointment as well.
The pending case complicated some enforcement work begun by the agency, impeded its search for a deputy director and slowed the bureau’s cooperation with state attorneys general.
Representative Jeb Hensarling, the Texas Republican who heads the House Financial Services Committee, barred Cordray from testifying after a federal court ruling that cast doubt on his appointment. Yesterday, Hensarling said he’d invite Cordray to the panel.
“His confirmation, however, does not change the fact that the CFPB lacks the most basic semblance of accountability and transparency that hardworking taxpayers deserve from government agencies,” Hensarling said in a statement.
Portman secured a verbal commitment from Cordray to testify in front of the Senate Appropriations Committee, even though the panel has no jurisdiction over CFPB, according to the senator’s spokesman, Jeffrey Sadosky. Portman also said he obtained a commitment to have CFPB rules subjected to a cost-benefit analysis.
“Director Cordray and the staff of the CFPB are always happy to brief members of Congress about the work of the agency,” Jen Howard, a CFPB spokeswoman, said in an e-mail. “He told several members that the CFPB is willing to provide a briefing on our budget, as we have done many times in the past.”
Howard declined to comment on whether the agency would subject its policies to cost-benefit analysis.
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