October 3, 2024

Appointment Clears Way for Consumer Financial Agency

The recess appointment of Richard Cordray on Wednesday as director of the consumer bureau finally gives the fledgling agency the legal standing to supervise those types of financial enterprises, something it has lacked since the bureau was created with the signing of the Dodd-Frank financial regulation act in July 2010.

Although the Dodd-Frank law authorized the consumer agency to regulate the so-called nonbank financial companies, which previously had little supervision, the law was purposely written such that the bureau could not invoke its powers until it had a director.

The bureau had taken responsibility for existing regulations on consumer products at banks and thrifts, it was not able to write new regulations for banking products like mortgages and credit cards until it had a permanent leader.

“Now, with a director, the C.F.P.B. can exercise its full authorities — with respect to both banks and nonbanks — to help those markets operate fairly, transparently, and competitively,” Mr. Cordray, a former Ohio attorney general, said in a blog post Wednesday on the bureau’s Web site.

Most of the nonbank financial companies, he said, “had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers.”

Mr. Cordray was appointed as the enforcement director for the consumer bureau by Elizabeth Warren, who served as a special adviser to President Obama for overseeing the startup of the agency. Though Ms. Warren conceived the bureau, championed it in Congress and was the president’s pick to get it running, she never had the agency’s full powers because she was never formally nominated by the president and confirmed by the Senate.

The bureau has begun some duties like a banking supervision program by placing regulators at many of the nation’s largest banks to review mortgage lending and consumer banking fees.

The consumer bureau director also can influence banking policy as a member of the board of the Federal Deposit Insurance Corporation, which itself is awaiting Senate confirmation of three presidential nominees to its board.

The consumer bureau focuses on “unfair, deceptive or abusive” acts or practices in products like private education loans and prepaid charge cards and at companies like mortgage servicers, which have come under harsh criticism for their foreclosure practices since the housing bubble burst.

Payday lenders, the target of much of the criticism directed at nonbank financial companies, said Wednesday that they would work with the consumer bureau. D. Lynn DeVault, chairwoman of the Community Financial Services Association of America, a trade group for payday lenders, said that more than 19 million Americans have used the companies for short-term loans, which she said were simple, transparent and well understood by consumers.

The Obama administration has not always agreed. It said last month that short-term payday loans can carry interest rates of more than 400 percent, if measured on an annual rate, and fees are not always clearly disclosed.

Consumer advocacy organizations hailed Mr. Cordray’s appointment. “The C.F.P.B. will no longer have to fight mounting consumer financial abuses with one arm tied behind its back,” said Travis B. Plunkett, legislative director for the Consumer Federation of America.

But some banking and business organizations objected. The American Banking Association, which represents banks of all sizes but generally is considered the voice of the largest institutions, said the appointment “puts the bureau’s future actions in constitutional jeopardy, threatening its work, complicating compliance efforts of banks and further undermining the entity’s authority and credibility.”

Many community banks and credit unions have been eager to see the agency up and running because they often compete against nonbank mortgage lenders and other loan companies.

Thomas J. Donohue, president of the U.S. Chamber of Commerce, said its members “strongly believe it’s important to protect consumers from predatory lending, financial scams and fraud in the marketplace.” But he cited the agency’s structure and lack of oversight as its main problems.

The consumer bureau is housed within the Federal Reserve but was given the power to determine its own budget, without Congressional appropriation. The law provides the agency with a budget of up to 11 percent of the Fed’s total 2009 operating expenses, or up to $406 million this year.

Senate opponents want the director replaced with a five-member board similar to those of other regulatory agencies and have refused to consider voting on any nominee until the structure is changed. Currently, any rules that the director puts in place can be overturned only by a vote of two-thirds of the Financial Stability Oversight Council, a 10-member board created by Dodd-Frank law to monitor the financial system.

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Former Ohio Attorney General to Head New Consumer Agency

Mr. Cordray came to national attention for his aggressive investigations of mortgage foreclosure practices while he was attorney general. He is already an employee of the watchdog agency, which starts formal operations on Thursday, as the leader of its enforcement division.

“Richard Cordray has spent his career advocating for middle-class families, from his tenure as Ohio’s attorney general to his most recent role as heading up the enforcement division at the C.F.P.B. and looking out for ordinary people in our financial system,” Mr. Obama said in a written statement. He is expected to formally announce the nomination on Monday.

Congress created the bureau a year ago this week with the enactment of the Dodd-Frank law, which overhauled financial regulations after the credit crisis. The bureau, a centerpiece of the sweeping new law, has since emerged as one of the thorniest topics in Washington and on Wall Street.

Putting a director in place is critical because the agency will not gain the full measure of its powers until the Senate confirms a nominee. The agency can supervise the compliance of banks with existing laws, but the Dodd-Frank financial legislation dictates that it cannot write new rules or supervise other financial companies without a director.

The decision to pass over Ms. Warren — who conceived the bureau, championed its creation and orchestrated its establishment for the last year as a White House adviser — reflects political realities.

Her candidacy was passionately supported by liberal members of Congress and consumer advocacy groups. But she never won the full support of the president or his senior advisers, particularly the Treasury secretary, Timothy F. Geithner, in part because of her independent streak and her outspokenness, which at times put her at odds with the administration.

Also, since last year Mr. Obama has been trying to rebuild relations with the business community after the fights early in his term over health care and financial regulations. Republicans, for their part, had vowed to block her nomination because they said her criticisms of the banking industry showed a lack of fairness.

The financial industry and its lobbyists have worked to delay or dilute several crucial provisions in the Dodd-Frank law, with the consumer bureau chief among them. The industry, along with Congressional Republicans, has hammered away at the bureau’s authority and structure.

While Ms. Warren received the brunt of the scrutiny, Wall Street executives also bristled at the selection of Mr. Cordray to lead the bureau’s enforcement team. Seen as a zealous prosecutor of financial crime, Mr. Cordray is a similarly contentious figure among bankers and lobbyists.

Republicans made it clear on Sunday that they were no more likely to confirm Mr. Cordray than Ms. Warren. Forty-four Republican senators have signed a letter saying they would refuse to vote on any nominee to lead the bureau, demanding instead that the agency replace a single leader with a board of directors.

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

The administration has had little success in persuading the Senate to confirm nominees for several other financial regulatory posts, although some recent appointments are pending. Mr. Cordray joins a queue that includes the proposed leaders for two banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and two board members for the Securities and Exchange Commission. About a dozen positions remain vacant.

Mr. Cordray did receive a quick endorsement from Ms. Warren.

“Rich has always had my strong support because he is tough and he is smart — and that’s exactly the combination this new agency needs,” she said in a statement on Sunday. “His work and commitment have made it clear that he will make a stellar director.”

Some of Ms. Warren’s supporters also gave him a reluctant thumbs-up.

“Elizabeth Warren was the best qualified to lead this bureau that she conceived — and we imagine Richard Cordray would agree,” said Stephanie Taylor, a consumer advocate who collected 350,000 signatures on a petition calling for the president to nominate Ms. Warren. “That said, Rich Cordray has been a strong ally of Elizabeth Warren’s, and we hope he will continue her legacy of holding Wall Street accountable.”

Jackie Calmes and Carl Hulse contributed reporting from Washington. Ben Protess contributed from New York.

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