Court Ruling Puts Cloud Over Consumer Agency as Work SlowsCarter Dougherty
A court ruling that cast doubt on the authority of its director has hampered the U.S. Consumer Financial Protection Bureau, slowing some enforcement, impeding recruitment of a second-in-command and delaying joint ventures with the states, people briefed on the agency’s work said.
President Barack Obama last year appointed Richard Cordray director when the Senate wasn’t in session, the same day he made appointments to the National Labor Relations Board. The U.S. Court of Appeals in Washington on Jan. 25 concluded the NLRB moves were unconstitutional, which could also affect Cordray. The Obama administration has appealed to the Supreme Court.
House Republicans have said they won’t take testimony from Cordray in the meantime. A Native American tribe has refused to supply information about its online lending business, claiming Cordray isn’t a legitimate director, according to three people with knowledge of the matter. Candidates to be Cordray’s deputy won’t pursue the job while his fate is unclear, two people familiar with the search said.
The bureau’s plans to cooperate on enforcement with state attorneys general under the 2010 Dodd-Frank law also haven’t panned out, said Greg Zoeller, the attorney general of Indiana.
“There has not been the gearing-up on consumer protection that I’d expected because of the cloud over the CFPB’s authority,” Zoeller, a Republican, said in an interview.
The people all spoke on condition of anonymity because the matters aren’t public.
The headwinds haven’t stopped the bureau’s work. Since it was established by Dodd-Frank, the agency has obtained $425 million in restitution for consumers and has imposed fines including $15 million on mortgage insurers over kickbacks. The bureau warned banks about the consequences of discriminatory auto lending, released data on consumer complaints and published a study of payday lending.
“From before its inception, this agency has faced pressure and they’ve done more than an admirable job of rising to the challenge,” Reid Cramer, who directs a program aimed at promoting family wealth-building policies at the Washington-based New America Foundation, said in an interview.
Moira Vahey, a spokeswoman for the bureau, said the court case “has not impacted” the search for Cordray’s deputy. She said the agency has “already joined state attorneys general in taking enforcement action,” including one that involved five states and led to a Dec. 21 court order against a firm that unlawfully charged advance fees for debt-relief services.
“The bureau is committed to rooting out practices that harm consumers,” Vahey said. “We have forged and will continue to build close partnerships with state and local law enforcement agencies to further our mission of protecting consumers.”
Representative Jeb Hensarling, the chairman of the House Financial Services Committee, said on April 23 he will refuse to take testimony from Cordray. Hensarling, a Texas Republican, on March 8 asked the bureau for documents and information about how its work might change in light of the court decision.
“The possibility that an agency’s actions may be challenged is not a reason for the agency to fail to carry out its legal duties,” Meredith Fuchs, the bureau’s general counsel, said in a March 22 response.
Still, Fuchs is supervising work that is analyzing the bureau’s options in the event the Cordray appointment is overturned, according to a person briefed on the discussions.
“That’s what good lawyers do -- they think through every contingency and worst-case scenario,” Deepak Gupta, a former lawyer at the agency, and a founder of appellate law firm Gupta Beck PLLC, said in an e-mail.
Obama’s Jan. 4, 2012 appointment of Cordray came after Senate Republicans vowed to block a confirmation vote on any bureau director unless the administration agrees to changes in the agency’s funding and structure.
Republican lawmakers have opposed the bureau ever since it was conceived by Elizabeth Warren, now a Democratic senator from Massachusetts. They said an independent agency is unnecessary and has too much power without enough accountability. One change Republicans have demanded would replace the single director with a five-member commission.
Senator Harry Reid, a Nevada Democrat who is the Senate’s majority leader, said he plans to hold a procedural vote soon on Cordray’s nomination. Republicans, who hold 45 seats in the 100-member Senate, can deny Democrats the 60 votes needed to set the stage for simple majority approval.
“There has been a sustained attack on the bureau since it started,” Lisa Donner, executive director of Americans for Financial Reform, a consumer advocacy group, said in an interview. “So I don’t know that the latest turns have changed that basic fact.”
Under Dodd-Frank, the bulk of the bureau’s authority to supervise banks with assets above $10 billion, a group of about 110 that includes JPMorgan Chase & Co. and Lafayette, Louisiana-based Iberiabank Corp., doesn’t require that a director be in place. Without a director, though, the agency couldn’t extend its supervision to non-bank financial firms, including online payday lenders.
The uncertainty has helped slow the bureau’s attempts to scrutinize online lending businesses operated by Native American tribes, according to two people briefed on the probe who spoke on condition of anonymity because the matter isn’t public.
Companies operated by the Chippewa-Cree tribe in Montana, the Tunica-Biloxi tribe of Louisiana and the Otoe-Missouria tribe of Oklahoma last year were sent civil investigative demands, a kind of subpoena for business data, the people said.
“The purpose of this investigation is to determine whether small-dollar online lenders or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, provision, or collection of small-dollar loan products,” according to a copy of one of the documents obtained by Bloomberg News.
The Chippewa-Cree challenged the request in part on grounds Cordray’s appointment was illegal. Cordray hasn’t acted on the petition, which could require him to address the constitutional question, the people said. By contrast, when three other companies filed similar petitions, Cordray published responses within 90 days, records show.
James Hopper of the Otoe-Missouria company, Billi Anne Raining Bird-Morsette of the Chippewa-Cree firm and Marshal Pierite of the Tunica-Biloxi lender didn’t respond to requests for comment. Vahey, the bureau spokeswoman, declined to comment on an ongoing enforcement matter.
The court case has hampered Cordray’s ability to find a permanent replacement for Raj Date, the agency’s first deputy who left to start a consulting firm, two people briefed on the search said.
Cordray appointed Steve Antonakes, associate director for supervision, enforcement and fair lending, as acting deputy on Jan. 31. Cordray has interviewed candidates who have said they are concerned that if his appointment is reversed they also would be removed, the people said.
Zoeller, the Indiana attorney general, said the uncertainty also hangs over the powers Dodd-Frank granted to state officials to enforce federal consumer protection laws.
While working with state attorneys general has been a signature of the consumer bureau since its inception, the states are now holding back, fearful that they will be pulled into the constitutional dispute.
“Nobody is eager to try out the new authority,” Zoeller said. “You know you’ll end up fighting that in court.”
Iowa Attorney General Tom Miller, a Democrat, said that while the constitutional questions might slow an enforcement case, that is temporary. His office continues to work with Cordray and the agency, he said.
“The issue of Rich’s status will be decided, one way or another, by the end of the year,” Miller said in an interview.