U.S. Senator Elizabeth Warren accused Republicans of trying to weaken the Consumer Financial Protection Bureau by blocking the confirmation of its director unless lawmakers agree to change the agency’s structure.
Warren spoke at a Senate Banking Committee hearing today to consider the nomination of Richard Cordray to head the agency. Cordray faces a pledge by 43 Republican senators -- enough to prevent a floor vote -- to block his confirmation unless Democrats agree to structural changes to the bureau, created by the 2010 Dodd-Frank Act.
The changes demanded by Republicans include putting the bureau under the control of a bipartisan commission and subjecting its budget to the congressional appropriations process. The agency’s budget is now linked to the Federal Reserve.
“What I want to know is why there are agencies all over Washington whose rules are final, subject to the ordinary reviews and oversight, while CFPB is the only agency in government subject to a veto by other agencies but unlike the CFPB no one in the U.S. Senate holds up confirmation of their directors demanding that those agencies be redesigned,” Warren said. “From the way I see how other agencies are treated, I find nothing here but a filibuster attempt against Director Cordray as an attempt to weaken the consumer agency.”
The Republicans’ position hardened after a federal court ruling raised questions about the validity of President Barack Obama’s 2012 recess appointment of Cordray to direct the bureau after Republicans blocked his first nomination.
The parties are refusing to negotiate as they await further court rulings.
“There are legitimate arguments on both sides but until you have a court ruling I can’t see a lot of pressure on either side to compromise,” said Joseph Engelhard, a former Treasury official who is now senior vice president at Capital Alpha Partners LLC, a Washington-based investment advisory firm.
Senator Michael Crapo, a Republican from Idaho and the ranking member on the banking committee, said the CFPB should have a structure similar to that of the Securities and Exchange Commission, which is subject to appropriations. The committee also considered the nomination of Mary Jo White to lead the SEC.
“I believe that structural changes to the CFPB are essential,” Crapo said. “Moving from a single director to a board format will bring about transparency and openness. In addition, the agency needs to be put on federal appropriations process so that Congress knows how monies are being spent.”
Republicans were not critical of Cordray himself and some even praised his work at the CFPB. Senator Bob Corker, a Republican from Tennessee, said he is hopeful a solution can be reached.
“I do hope that over the course of the next short period of time we’re able to figure out a way for the entity to function in a way that makes everyone on both sides of the aisle feel comfortable,” Corker said.
Opposition to the form of the CFPB should not be a basis for opposing Cordray, said Senator Robert Menendez, a Democrat from New Jersey. He called the nominee “someone who is eminently qualified, who has been fair, who has been balanced, who has been transparent.”
Cordray, 53, said he is open to being more transparent and accountable to Congress.
“We continue to be and I personally continue to be interested in working with the Senate to further develop transparency of and accountability of the agency,” Cordray said. “There are numerous provisions now that we follow.”
Coburn, who said Cordray has done a “great job,” asked whether he has disclosed his budget to usaspending.gov, the Office of Management and Budget’s searchable government spending website. Cordray said he didn’t know, but would find out and report back to Coburn.
“The American people have a right to know where you’re spending the money,” Coburn said. “And by federal statute, as authored by President Obama and I, it is required of every agency to put their information and their spending on that site.”
Cordray said subjecting the bureau’s budget to the appropriations process would make it unusual among the bank regulators, most of which are funded through fees on the industry. He said he would consider proposals that add “transparency and accountability” to the bureau’s operations.
Cordray can be confirmed by a majority vote, but to call the vote on the Senate floor, Democrats need 60 members’ support. With 55 members in the Senate’s Democratic caucus, five Republicans would have to break ranks to allow a vote.
The ruling by the U.S. Court of Appeals in Washington overturned the validity of three National Labor Relations Board recess appointments made at the same time as Cordray’s, making him vulnerable to a similar legal challenge. An invalidation of of Cordray’s appointment would threaten the legitimacy of the agency’s regulations and enforcement actions under his leadership.
“President Obama clearly took things too far violating the longstanding procedure for recess appointments,” Senator David Vitter, a Republican from Louisiana, said in an e-mail. “This will have an impact on Richard Cordray and the CFPB because the facts are exactly the same as the NLRB.”
The NLRB said today it would ask the Supreme Court to review the appeals court decision.
The two parties are “deadlocked until a court rules on Cordray,” said Mark Calabria, a former Senate Republican staffer and director of financial regulation studies at the Cato Institute. He said Republicans were emboldened since the labor board decision.
Jaret Seiberg, senior policy analyst at Washington Research Group, a unit of Guggenheim Securities LLC, said a problem with waiting on the court is that a final decision may not come until the end of the year.
“There’s an obvious middle ground that you change the structure but leave the funding in place,” Seiberg said. “I think that’s eventually where we get but we are less optimistic that the Senate will get there quickly. This could easily drag out until 2014.”
In 2007, while still a professor of bankruptcy at Harvard University Law School, Warren wrote a paper proposing the formation of a federal consumer agency designed to help protect ordinary Americans from shoddy financial products. Warren’s original name for the bureau was the “Financial Product Safety Commission.”
On Feb. 14, a group of 54 Senate Democrats sent the president a letter noting their support of Cordray and opposition to any structural changes to the consumer bureau. The nomination of Cordray and structural changes to the CFPB should not be tied together, they said.
“The precedent Republicans are setting with Cordray is a terrible precedent,” Senator Sherrod Brown, a Democrat from Ohio, said in an interview. According to Brown, Senate historians say this is the first time in the chamber’s history “where one party said no to a nominee because they don’t like the agency and the agency is the law.”
Democrats have used Cordray’s record as CFPB director, including setting mortgage underwriting and servicing standards and settlements with credit card companies, as a positive reason for his confirmation.
“I don’t think I’ve heard either side, Democrat or Republican, anyone having concerns about his character, the job he’s done,” said Senator Joe Manchin, a West Virginia Democrat.
Brian Gardner, senior vice president for Washington research at Keefe, Bruyette & Woods Inc., said there is “no reason to believe” Cordray’s chances at confirmation are any better this time than during his last nomination.
“If Richard Cordray withdrew his nomination tomorrow and the administration nominated someone else he would run into exactly the same road block,” Gardner said. “It has very little to do with him.”
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