Although the CFPB has hammered away at these issues since its inception in 2011, the prolonged fight over Cordray’s Senate confirmation at times overshadowed the bureau’s efforts. His confirmation over the summer cleared the way for the agency to take more-aggressive steps to police the industry.
In an interview, Cordray laid out his vision for the bureau, which has issued a series of rules to govern mortgage lending and handed down enforcement actions against big banks for abusive lending practices. An edited transcript of his remarks follows:
You’ve become known for your research-driven approach, which is a bit different than other regulatory agencies. How would you describe the bureau’s style of supervision?
We have a new challenge that’s different from other agencies, which is we’re building a program from scratch and supervising non-bank institutions. That’s a very interesting phenomenon in several respects, and it’s one of the key insights in the consumer protection part of [the] Dodd-Frank [financial reform law].
It recognizes that only supervising chartered institutions is not a very workable model because in the actual marketplace for several of these products — mortgage origination, mortgage servicing, small dollar lending — you have chartered institutions and non-chartered institutions competing against each other. That model really failed us in the mortgage market and in the lead-up to the crisis. And it was a lot of the unsupervised areas where some of the most irresponsible practices occurred. We have line of sight now across markets, which is critical for regulatory success.
We have to institute our supervision program for financial institutions that are used to being regulated, but not necessarily used to being regulated with a focus on consumer protection. It’s an adjustment for them.
But in the non-bank sphere, they’re often not used to being regulated at all, or only on the state level. In that area, there has been a real shift toward more of a compliance mentality. And our being on the scene and doing this work has caused that shift. And it’s an important one if we’re going to get to where we have a leveled playing field in these markets.
How do you manage the industry’s fear about the broad power of the CFPB?
It’s an adjustment [for companies], one that needed to be made. It’s the right perspective that an institution needs to merge the short-term and long-term thinking about its business model. It’s not a long-term business model to take advantage of your consumers in ways that are not sustainable. That’s what brings safety and soundness regulation and consumer protection regulation back together and really makes them harmonious.