The Consumer Financial Protection Bureau was born in controversy. The financial industry balked at the bureau’s outspoken founder, Elizabeth Warren, and lobbied against having a new independent regulator to answer to. After President Obama used a recess appointment to have former Ohio Attorney General Richard Cordray replace Warren, opponents howled that the appointment was invalid and the bureau was operating illegally. Over time, that argument largely faded from public debate. Under Cordray’s leadership, the industry says the CFPB has failed to become the one-sided regulator it feared, and when I reported on the CFPB’s first year last month, the issue rarely came up in interviews.
Then, over two days in late January, the CFPB battle flared anew, causing regulatory uncertainty in an industry that was finally stabilizing. First, Obama on Jan. 24 announced plans to renominate Cordray, whose recess appointment runs out in a year. The next day, a three-judge panel in a federal appeals court invalidated three recess appointments Obama made to the National Labor Relations Board, saying Congress wasn’t really in recess when the appointments were made. Although the court ruling didn’t directly address the CFPB, Cordray was appointed on the same day as the NLRB board members.
Taken together, congressional Republicans saw more leverage to raise their former gripes about the CFPB. Republican senators sent Obama a letter threatening to block Cordray’s appointment unless the CFPB’s structure changes. They want the bureau to be run by a board instead of a single director, and they want it to be subject to the regular appropriations process, which would give Congress control over the agency’s budget. The bureau and consumer advocates contend these changes would weaken the CFPB’s independence and its ability to protect consumers.
The three-judge ruling at the appeals court most likely won’t be the final word. The decision has come under fire and contradicts rulings at peer courts, making it probable that the case will be reviewed by the court’s full panel of judges or appealed to the Supreme Court. And there’s support for Cordray among people in the financial industry. After Obama announced Cordray’s renomination, David Stevens, president of the Mortgage Bankers Association, praised Cordray as a “steady, consistent voice” who was willing to listen and learn from the industry’s perspective.
The industry certainly is ready for some consistency after being paralyzed by uncertainty over the shape of new regulations, in particular related to mortgages. In January the CFPB released new rules that will shape the future of lending, providing guidelines that the mortgage industry says are generally fair and manageable. Of course, the industry would love if the Republican senators’ proposed changes were enacted and the CFPB had less independence. But those changes are a long shot and had been rejected when Congress created the CFPB as part of the Dodd-Frank financial reform bill.
In the meantime, just as the financial industry was seeing greater regulatory certainty, congressional politics is upheaving it all again.