Cordray Nomination Battle and the CFPB’s Future

President Obama nominated Rob Cordray to be the head of the Consumer Financial Protection Bureau on Monday. The move shocked some liberal activists who had hoped that Elizabeth Warren, who had envisioned and helped create the agency, would become its de facto leader.

Cordray was handpicked by Warren to become the head of the agency’s enforcement division after he had lost a close re-election battle as Ohio’s Attorney General. In addition to being a five-time, undefeated Jeopardy champion, Cordray’s lawsuits against GMAC mortgage for fraudulent foreclosure practices and Bank of America for hiding it’s losses during a merger with Merrill Lynch have solidified his reputation as a tough and intelligent watchdog.

Unfortunately, the Consumer Financial Protection Bureau lost a great deal of its power to protect consumers today. The agency was required under law have a director within one year of the Dodd-Frank law passing. Without a director, the agency doesn’t have the power to regulate non-bank entities. These include debt relief services, student loans, check cashing and consumer credit reports. It also includes payday lending. Yes, the payday lenders who have more stores than we have McDonald’s in Colorado, who have spammed this site mercilessly and payed for it dearly in the state legislature. While Colorado has passed some protections for consumers in payday lending, the same level of consumer protection is not available in other states or types of financial products.

Despite the pitfalls created by the political process, the new agency is the greatest advancement for the average consumer since regulations instituted at the end of the Great Depression and should bring some comfort to Americans who have called for accountability from the institutions that created our current economic crisis:

Regardless of whether the CFPB has a director by its July 21 “transfer date,” there are certain things it will immediately begin to do. One is to send teams of examiners into banks and credit unions to make sure they are complying with existing consumer finance regulations. When the bureau is fully staffed up–initially, it will have some 500 employees and an annual budget of around $500 million — a majority of the people who work there will be examiners. The bureau has only supervisory power over banks with assets of more than $10 billion, though the rules it writes will still apply to smaller banks. Banks on the low end of the scale will see a team of examiners for a few weeks every two years, unless there are specific complaints to investigate. Most of the biggest banks, those with assets of $100 billion and up, will have CFPB examiners in residence year-round.

Having new rules that the CFPB writes being applied to smaller banks is especially relevant for Colorado, which had Colorado Capital Bank and United Western Bank rapidly expand lending without the necessary capital to back it up. The closure of these banks caused great hardship for farmers, businesses and investors throughout the state. Had the Consumer Financial Protection Bureau existed a decade ago, Colorado, and the rest of the world,  might have avoided the Great Recession.

Republicans, who have railed against Warren in congressional hearings and the press, have now placed a blanket hold on any nominee for the director position. Meanwhile, they have tried to institute a partisan board to replace the director position and subject the agency’s funding to congressional approval. The President has threatened to veto any bill that would inhibit the agency’s ability to function and protect consumers. The only route that is left to erect the new agency and fully protect consumers is a recess appointment. Republicans have blocked every opportunity for recess appointments through pro forma sessions.

One person who shouldn’t be feeling any level of comfort is Sen. Scott Brown. Without Warren at the helm of the agency, Brown has a formidable challenger. Warren’s down-home demeanor, working-class roots and ability to to boil down complex issues and make them understandable are major assets on  the  campaign trail. Brown’s camp has been flailing at the announcement that Cordray would be heading the CFPB, sending out wildly inflated “internal polling” showing him umpteen points ahead of a potential Warren candidacy more than 14 months out from the election.

The battle to confirm or appoint a director to the fledgling bureau is far from over. But for the first time since the advent of the Great Recession, there is a watchdog looking out for the best interest of the consumer.

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