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Is the CFPB Choice in 'Jeopardy'?

o Karen M. Kroll
26.07.2011 kl 00:25 | CFOworld (US)

President Obama's nominee to head the Consumer Financial Protection Bureau, Richard Cordray, has been its chief of enforcement. Earlier, as attorney general of Ohio, according to his bio on the White House website, Cordray helped to recover more than $2 billion for Ohio citizens and business owners, and helped protect consumers from fraudulent foreclosures and financial predators. Getting almost as much attention, in some circles: his achievement 14 years ago winning $45,000 as a champion on the TV game show Jeopardy.

 

President Obama's nominee to head the Consumer Financial Protection Bureau, Richard Cordray, has been its chief of enforcement. Earlier, as attorney general of Ohio, according to his bio on the White House website, Cordray helped to recover more than $2 billion for Ohio citizens and business owners, and helped protect consumers from fraudulent foreclosures and financial predators. Getting almost as much attention, in some circles: his achievement 14 years ago winning $45,000 as a champion on the TV game show Jeopardy.

In his bid to become head of the watchdog agency created through the Dodd-Frank Wall Street Reform and Consumer Protection Act, though, his strongest recommendation may be that he's not Elizabeth Warren, the former Harvard Law professor who has been running the bureau, seeming to create controversy with whatever she said or did. (Her official title has been special advisor to the secretary of the Treasury on the CFPB.)

To be sure, there's no guarantee that Cordray will make it through the nomination process, says Kevin Petrasic, partner in the global banking practice with the law firm of Paul, Hastings, Janofsky & Walker LLP. "He is a compromise candidate," Petrasic says, and so his differences with Warren could help him among critics of the regulatory model represented by the CFPB. "She's clearly an icon of consumer financial protection," Petrasic says. "She's been somewhat of a lightning rod for folks that don't like the agency and don't like what it stands for."

Nonetheless, "industry and the regulators will be sizing each other up" as the nomination is considered, putting Cordray at the center of that difficult process.

At this point, many people in business say they are committed to working with Cordray if he's approved in the post --- even if they express concerns about the agency he is charged with leading.

'Extremely Tough but Fair'

The Community Financial Services Association of America, the trade group for payday lenders, says in its statement that it is "committed to working with the Consumer Financial Protection Bureau, just was we do with regulators in the 32 states where our members provide small dollar, short-term credit." A spokesperson says the association doesn't have any further comment.

But Bill Himpler, executive vice president with the American Financial Services Association, the trade association for the consumer credit industry, says, in a telephone interview with CFOworld: "We look forward to hearing his testimony and regulatory philosophy at his confirmation hearing." Himpler, whose organization represents companies like CitiFinancial, Mastercard and Toyota Financial Service, adds that the AFSA also looks forward "to working with him, should he be confirmed."

Richard Hunt, president of the Consumer Bankers Association, a trade association for retail banking, tells CFOworld that he talked with Cordray moments after his nomination. According to bankers who crossed paths with him in Ohio, Cordray was "extremely tough but extremely fair," Hunt says.

In addition, he says, the nomination itself is a step forward. Without a director, the bureau is controlled by the Treasury, an arm of the administration. "It's anything but independent," according to Hunt.

A Harsher Chamber Assessment

The statement issued by the U.S. Chamber of Commerce has been perhaps the harshest, calling on the Administration to "seek clear answers from Richard Cordray about how he would use the powers of the bureau, if he is confirmed as its first director." The statement also notes that the chamber has concerns about positions the bureau already has taken. "We have seen efforts to regulate the mortgage industry through enforcement settlements rather than by engaging in a deliberative, fair, transparent rulemaking," the statement says.

While the chamber may be rather blunt in its reaction to Cordray's nomination, other business leaders are expressing more concern about the CFPB's structure. Richard Hunt says he would have preferred dedicating more resources to existing agencies, rather than to create a new one.

And the biggest criticism appears to be the fact that the bureau is being led by a single director, rather than a commission or board. The CFPB's structure puts "unprecedented powers to regulate a large part of our economy in the hands of a single individual with virtually no checks and balances," according to the chamber's statement.

"The commission format has a good track record," adds ASFA's Himpler, adding that commissions tend to be prudent with respect to balancing their mission and the profitability of the entities they regulate.

Support for Some Aspects

These concerns notwithstanding, even some people questioning the CFPB's structure support aspects of its mission. The bureau's mandate to regulate both banks and non-banks should level the playing field, says Hunt. Many banks face competition from non-bank organizations, such as pay-day lenders, that don't face the same level of regulations, he says. "Banks are heavily regulated at the state and federal level. It's fair and right that the new agency should have oversight over non-banks."

His Consumer Bankers group also supports the CFPB's efforts to simplify disclosures on credit card and mortgage documents, Hunt says. "We've been trying to reduce credit card applications and mortgage origination documents from pages to a page for some time."

The South Carolina Small Business Chamber of Commerce has been a big supporter of Wall Street reform, including the creation of the CFPB, says president Frank Knapp. Knapp also is an owner of Carolina Pet Resort in Columbia, South Carolina. Small businesses often operate more like consumers, Knapp says, using credit cards to finance their operations.

In response to calls for a board or commission structure at the CFPB, Knapp responds, with some sarcasm, "That's just what we need; rule by committee. When did that ever work? That's nothing more than an effort to slow it down." What's more, the CFPB agency does have to comply with the law, Knapp points out. All the horror stories about an independent person running the Bureau are "scare tactics to stop the intent of the legislation."

While businesses may have reservations about the CFPB, consumers seem more supportive. "We're very pleased the President is moving forward with an excellent nominee to head this critically important bureau," said Pamela Banks, senior policy counsel for the Consumer Union in a statement.

Some -- although hardly all -- visitors to the CFPB's website are downright effusive. Responding to a letter from Elizabeth Warren, one member of this admittedly self-selected group says: "Thanks for your passion and dedication to the American consumer." Another writes, "For too long, providers of financial products have used confusion as a tool to befuddle buyers from understanding how to compare products." Finally, from another, "I love, love this agency!"

While few business people are ast enthusiastic, they seem ready to work with Cordray and the CFPB.

And the CBA's Hunt offers the nominee a few words of advice: "Be clear with the banking industry and consumers, and don't overuse your enforcement power."

Keywords: Industry Verticals  Government  
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