The GOP doesn’t oppose Richard Cordray. It opposes his whole agency.

May 25, 2013

Consumer Financial Protection Bureau director Richard Cordray. (Jacquelyn Martin /ASSOCIATED PRESS)

Harry Reid could go nuclear this summer.

Reid is looking to take dramatic action to get Richard Cordray confirmed as head of the Consumer Financial Protection Bureau (CFPB). And according to reports this week, he’s likely to push for a major battle over the filibuster this summer once immigration reform is finished, but before the fall budget battle heats up. Although the massive increase in the use of the filibuster in recent years is a general problem, it’s of particular concern for financial reform. Instead of just disapproving of a candidate, Senate Republicans are explicitly blocking Cordray in order to rewrite important parts of Dodd-Frank they don’t like.

The GOP has been quite frank for several years now: their problem isn’t with Cordray, or with any specific candidate. They just don’t want anybody in the office with the CFPB structured the way it currently is under Dodd-Frank. Just look at the arguments conservatives put forward in early February, when 43 Republican senators signed a letter explaining why they would block any candidate for the position. (It’s very similar to a letter Republican senators signed in 2011.) The senators state, "We will continue to oppose the consideration of any nominee, regardless of party affiliation, to be the CFPB director until key structural changes [are made.]"

Conservatives are in a double bind when it comes to the CFPB. Their argument is that the CFPB “would wield nearly unprecedented powers” and lack “normal, democratic checks.” The CFPB, by their account, represents a major power grab on a scale never before attempted in the history of the regulatory state.

That is clearly wrong. The CFPB is structured to look like all the other banking regulators. Indeed, it is consciously modeled as a consumer-focused version of the Office of the Comptroller of the Currency (OCC). And as we’ll see, the powers that Republicans are arguing are unprecedented are actually the same powers and structures the other banking regulators have.This isn’t to say the CFPB isn’t a serious banking regulator. It is not a committee set up to go study something and make recommendations or an advisory panel that will disband before doing anything. Already it’s bringing accountability to the financial sector on behalf of consumers: It’s gone after illegal or deceptive practices at American ExpressDiscover, and Capital One and is bringing extensive new regulations to the housing market. It is, as they say, a big deal, and it is now the law of the land.

However, the law of the land also requires it to have an executive to be fully operational. As the Congressional Research Service summarized, “Until a CFPB Director is appointed, [Dodd-Frank] provides the Secretary the authority to exercise some, but not all of the Bureau’s authorities.“With the Senate stonewalling, President Obama recess-appointed Cordray. The constitutionality of this action was brought into question when the U.S. Court of Appeals in Washington, D.C. rejected a recess appointment to the National Labor Relations Board made at the same time.

The status of the CFPB’s actions, authorities and regulations is a  source of profound regulatory uncertainty. So why is the GOP blocking Cordray so aggressively? The Republican senators argue that there are three major changes they need to see before they’d let a nominee through. None of them are really things that make the CFPB less accountable or more likely to deliver worse rules than any other regulator.

Two, three many directors


Former FDIC chairwoman Sheila Bair, whose agency has multiple commissioners, much as the CFPB that Republicans envision would. (Manuel Balce Ceneta/ASSOCIATED PRESS)

The first reform the GOP wants is the establishment of “a bipartisan board of directors to oversee the Consumer Financial Protection Bureau." So instead of one director, Cordray, it would have several.

But as it stands, the OCC also has a single director. So did the Office of Thrift Supervision (OTS). Some other agencies have boards, like the FDIC, but it isn’t clear which model is better than the other, and either way, the GOP hasn’t made the case for why a board is so essential that it is worth shutting down the CFPB. A single director can be more accountable than a group of people likely to defer blame to each other.

The underlying claim here is that the CFPB is somehow unaccountable. But it’s actually more accountable than other regulators. For one thing, as Georgetown University law professor Adam Levitin noted in testimony, the CFPB is subject to a veto of its actions by other financial regulators, a feature that does not apply to any other regulator. But in general it’s a regulator: it follows the Administrative Procedures Act, gets public comments and is subject to judicial review.

Money troubles


Former SEC chair Mary Schapiro, whose agency, unlike the CFPB, is funded through the normal appropriations process. (Alex Wong/GETTY IMAGES)

 

The second change the GOP wants is to "subject the Bureau to the annual appropriation process, similar to other federal regulators."

However, other federal regulators have their own independent budgets and are not subject to the annual appropriation process. The OCC, the FDIC and the defunct OTS use fees and other charges on the financial institutions they regulate, for instance. The CFPB has a statutory budgetary cap of 12 percent of the Federal Reserve’s budget.

The Congress that voted Dodd-Frank into law made a conscious decision to fund the CFPB this way, for fear that the normal appropriations process would leave it underfunded. This is normal in financial regulation and appropriate for the CFPB.

Safe and sound


Former comptroller of the currency John Dugan, whose old office can challenge CFPB decisions. Dugan was widely considered one of the least effective government regulators during the crisis. (Kevin Lamarque/REUTERS)

The third and final change the GOP wants is to "establish a safety-and-soundness check for the prudential regulators." This means it thinks the CFPB could destabilize the financial sector. It's not clear how this would work.

There is already a safety-and-soundness check at the OCC, which, through the Financial Stability Oversight Council, can vote on vetoing CFPB actions. It’s not clear why this is important to Republicans. A cynical reading would be that since profit-making is one way to achieve the safety and soundness of banks that the CFPB regulates, anything that might get in the way of banks ripping off their customers would hurt safety and soundness. And, indeed, big fines and settlements for illegal practices do, in theory, mean more capital that they’ll have to raise, or lower earnings for shareholders. But aren't such fines and settlements how we provide accountability to the financial sector?

Consumer financial protection used to be the orphan mission of 10 different agencies. (See if you can say the entire alphabet soup in one breath. Ready? The OCC, OTS, NCUA, Federal Reserve Board, FDIC, FHFA, HUD, VA, FTC, and DOJ.) Since everyone had it as a subordinate mission of their other goals, in practice it meant that nobody was doing it. The dedicated mission of the CFPB is to provide accountability on behalf of consumers, and the GOP’s goal is apparently to divert it from that mission.

Rather than doing their job and providing advice and consent on appropriate candidates, Republicans in the Senate are nullifying a law they don’t like. There’s no basis for arguing that the CFPB is anything but a regulatory agency like any other. The fact that the GOP senators wants this or that part of Dodd-Frank replaced doesn’t give them the right to prevent Dodd-Frank from going forward.

Republicans had a chance to contribute to the Dodd-Frank law; chances are they could have gotten major changes for just a few Republican votes. Instead they went all-in, hoping to prevent a more liberal bill from passing at all. They failed, and then they failed to set up 2013 as a year in which repealing Dodd-Frank would be possible. The nomination process is meant to vet candidates, not give losing parties a second bite at an apple they rejected the first time. Here’s hoping Reid can make sure it stays that way.

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Sarah Kliff · May 25, 2013