Cordray’s confirmation clears the way for the consumer bureau to take more aggressive steps to police the financial services industry. In the past year, the agency issued a series of rules to govern mortgage lending and handed down enforcement actions against big banks, including U.S. Bank, for abusive lending practices. It will also be more difficult to challenge the agency’s efforts to regulate those industries.
But the CFPB still faces vocal opposition from Republicans and some industry groups, which question the bureau’s sweeping power.
Cordray has been at the center of a larger political fight over the structure of the watchdog agency that has lasted two years. Senate Republicans had vowed to block the confirmation of any director until the CFPB’s single-director leadership was replaced with a five-member commission and its budget was subject to congressional approval.
In spite of Tuesday’s vote, Senate Republicans say they will continue the fight for structural changes at the consumer bureau.
“Those who are trying to portray Republican demands as being another attempt to water down consumer protection need to realize that consumer protection divested from safety and soundness does not make for a better financial system or greater benefit to consumers,” Sen. Mike Crapo (Idaho), ranking Republican on his chamber’s banking committee, said during the Senate debate.
Those who support having a commission lead the agency say that it is the best way to protect consumer interests in the long run because the strength of enforcement could otherwise waver depending on who is at the helm.
“There will be a day the Democrats will wish they passed a commission and not put all the power in the hands of one individual,” said Richard Hunt, president and chief executive of the Consumer Bankers Association.
Tensions over the CFPB came to a head in late 2011, when Obama installed Cordray to run the agency through a recess appointment. Republicans were livid about the move and dug their heels in against confirming Cordray.
A federal appeals court ruling in January shooting down similar recess appointments placed Cordray’s tenure in further jeopardy. Although the ruling targeted three members of the National Labor Relations Board, it could help a separate lawsuit seeking to use the same constitutional argument to remove Cordray.
“There is now no doubt that the American people will have a watchdog that’s . . . holding financial institutions accountable when they break the rules,” Sen. Elizabeth Warren (D-Mass.) said during a conference call with reporters.
Warren, who crusaded for the creation of the agency four years ago, said,“This vote locks all of the pieces in place.”
There are lingering questions about the legality of Cordray’s actions during his recess appointment. Last month, the Supreme Court said it will decide whether Obama exceeded his constitutional authority by making appointments while the Senate was on break. If the court rules against the president, financial firms could sue to invalidate the CFPB’s enforcement actions and rules during that period, said Oliver Ireland, a partner in the financial services practice of Morrison & Foerster.
Ireland, however, doubts any attempt to undo the bureau’s actions in the past year would be successful. In other cases in which companies challenge the authority of a federal agency, the courts typically side with the government.
“As a practical matter, there is just a problem of unscrambling an egg,” he said. “Once these things are there, can you effectively reverse them? I don’t think we’ll have chaos coming out of any Supreme Court decision.”
Cordray’s confirmation means the CFPB will now have the full authority to police payday lenders, debt collectors and other nonbank firms. The 2010 Dodd-Frank financial reform law, which created the bureau, requires the CFPB to have a confirmed director to regulate that segment of the financial industry.
In the past year, the bureau has issued reports on the perils of payday lending as well as unscrupulous practices in debt collection and credit reporting. Industry trade groups have railed against the research as biased and questioned whether the CFPB could be impartial in its supervision.
“Questions remain about several Bureau practices — such as the methodology it uses to determine discrimination through disparate impact and the scope and purpose of its vast collection of consumer account information,” Chris Stinebert, president and chief executive of American Financial Services Association, said in a statement.