President Barack Obama’s decision to install Richard Cordray as director of the Consumer Financial Protection Bureau expands the agency’s reach into non-bank firms blamed for helping to spark the 2008 credit crisis.
The consumer bureau, which started work on July 21, needed to have a director to carry out the full authority bestowed by the Dodd-Frank Act. Obama’s recess appointment of Cordray, the former Ohio attorney general, activates responsibilities for supervising and regulating companies such as loan originators and credit bureaus as well as traditional lenders.
“With a director finally in place and no question about its powers, the Consumer Financial Protection Bureau can start scrutinizing unfair practices by debt collectors, mortgage brokers, credit reporting agencies, and predatory payday lenders,” Lauren Saunders, managing attorney at the National Consumer Law Center, said in an e-mailed statement.
Obama pushed for creation of the consumer bureau after lawmakers accused existing regulators of doing too little to protect the public before credit markets collapsed in 2008. Congressional Republicans, who opposed Democrats’ plans for the agency in talks leading to passage of Dodd-Frank in 2010, sought to block the seating of a director until changes were made in
Oversight of non-bank financial firms is a “top priority,” Cordray said yesterday in a blog post on the bureau’s website.
“Over the coming weeks we’ll be announcing more information about this program and how it will help to improve the consumer finance markets,” he said in the statement.
The bureau already has initiatives in place that suggest it will remain focused on improving disclosure for mortgages, credit cards and student loans -- the major sources of credit for most Americans, said Reid Cramer, director of the asset-building program at the New America Foundation.
“The bureau will continue to roll out its agenda, initially focusing on the big products,” Cramer said in an e-mail. “But they will now be able to shed any lingering timidity as a startup agency.”
Since before its official start on July 21, the bureau has pursued work mandated by Dodd-Frank, such as a streamlined mortgage shopping form, while exercising its discretionary powers sparingly, if at all.
The bureau has yet to outline priorities for enforcement, the unit that Cordray headed before being appointed as director. It has brought no lawsuits, even though it has had authority over traditional banks, and responsibility for a range of federal laws, such as the Truth In Lending Act. Now it can act against non-banks, though the circumstances of Cordray’s appointment may complicate that work, said Mark Calabria, a former Senate Republican aide who serves as director of financial regulation studies at the Cato Institute.
“Anything you do on non-bank finance, you throw into questionable legality,” Calabria said in an interview. “If I was a payday lender or check casher that got an enforcement action over the next year, I would sure as hell sue.”
As part of its enforcement work, the consumer bureau could bring lawsuits under Dodd-Frank’s strictures against “unfair, deceptive and abusive” practices. That standard, created and defined in Dodd-Frank, remains untested in the courts.
The bureau has had supervisory authority over the largest banks -- those with assets over $10 billion -- since July 21, and examinations of some of them have already started. Supervision of non-bank firms awaits a formal rulemaking that specifies which companies will be examined in detail. That process could take another year.
Richard Hunt, president of the Consumer Bankers Association, said in an interview that the nomination would at least even out the regulatory burden faced by depositories and non-bank firms like payday lenders.
“One of the few great aspects of the CFPB is that you get a level playing field between banks and non-banks,” said Hunt, whose group has supported Republican demands to alter the bureau’s structure.
The agency has already indicated that supervision of the major credit bureaus -- Equifax Inc., Experian Plc and TransUnion Corp. -- is all but certain.
Federal officials may also lean heavily on state regulators and supervisors to oversee non-bank firms. Elizabeth Warren, the Harvard University law professor who set up the agency while serving as an aide to Obama and the Treasury Department, completed an information-sharing agreement in January 2010 that will influence oversight in the face a patchwork of existing state rules.
The bureau had a series of meetings with companies and consumer groups last year, and must propose a rule by July 21, the anniversary of its official start date. After a regulation is proposed, agencies typically then invite public comment before completing the rule and putting it into force.
“The agency can’t act rashly, but it can get the ball rolling prominently and firmly,” Travis Plunkett, director of legislative affairs for the Consumer Federation of America, told reporters in a conference call.
By later this year, the agency “should be well under way” in its work in areas such as mortgage servicing, overdraft charges, prepaid cards and payday lending of various types, Plunkett said. This work could come under its supervisory, research or enforcement functions, he said.
Obama declined to nominate Warren, who is credited with conceiving the agency, amid questions over whether she could win the 60 votes needed to ensure confirmation by the 100-member Senate. She left shortly after Obama nominated Cordray, and is running as a Democrat aiming to unseat Senator Scott Brown of Massachusetts, one of three Republican senators to back Dodd-Frank when it was passed in 2010.
Senate Republicans said in May they would block an up-or-down vote on any nominee until the bureau’s funding and structure were changed to make it more accountable to Congress. The House passed legislation to that effect, but the Obama administration refused to negotiate changes viewed by Democrats as efforts to undermine new consumer protections. The Senate then rejected Cordray on a procedural vote, setting the stage for today’s appointment.