Richard Cordray’s tenure as director of the Consumer Financial Protection Bureau is now as uncertain as it has been reassuring. As they focus on his upcoming confirmation vote, U.S. senators should focus on Cordray’s record, not his status.
Cordray’s legal standing, as well as an entire year’s work by the bureau, is in jeopardy after a federal court’s rejection last week of President Barack Obama’s recess appointments to the National Labor Relations Board. Cordray was appointed on the same day a year ago as those board members, and the ruling raises the question of whether their decisions of the past year are valid.
Republicans, who object to the very idea of the CFPB, say the decision validates their view of the bureau as illegitimate. This is absurd. Rather than focusing on the case -- which, after all, involves another federal agency and uses what may charitably be called novel reasoning -- they should examine the agency’s history. Once they do, the case for confirming Cordray is clear.
Cordray has operated the bureau in an open and transparent manner, meeting regularly with market participants, issuing regulations for public comment and changing final rules in response to concerns. He has listened to community banks and largely exempted them from regulations they feared would place a financial strain on small institutions that didn’t cause the financial crisis. Both industry and consumer groups have found the bureau’s regulations largely unobjectionable.
Consider its recent mortgage-underwriting rule, which requires that banks document a borrower’s ability to repay a loan. Lenders and consumer groups both worried the rule could restrict the flow of credit and raised objections to the scope of legal protection afforded to lenders (banks wanted more protection, consumer groups less).
The final rule took a Solomonic approach, providing a legal harbor for safer loans and giving borrowers with riskier loans more legal recourse if they ultimately default. The regulation’s framework, along with the inclusive nature of rule making, garnered plaudits from both the Mortgage Bankers Association and the Center for Responsible Lending.
This record is also evidence that the CFPB’s mission is vital to protecting consumers and the U.S. economy. Established by the 2010 Dodd-Frank Act, the agency was created in response to lax consumer protections that exacerbated the last meltdown. It’s charged with overseeing a broad swath of consumer finance players, including banks, credit card companies, mortgage brokers, and payday and student lenders.
Invalidating Cordray’s appointment would grind the CFPB’s work to a halt, as the law requires that the agency have a permanent director to issue rules and assume most of its supervisory powers. As Richard Hunt of the Consumer Bankers Association told Bloomberg News, the court decision “creates chaos in the marketplace.”
That’s not good for industry, consumers or the economy, but it may be inevitable. Once the validity of the CFPB’s regulations is called into legal question, then begins a legal process that is slow, unpredictable and frustrating.
That doesn’t mean the Senate has to be. As senators consider Cordray’s nomination, they should separate the legal issues from the operational ones. Many of the rules the CFPB is charged with writing are integral to jump-starting consumer credit, such as mortgages.
In the coming year, the bureau is expected to issue a long-awaited, simplified mortgage disclosure form to help borrowers better understand the dizzying array of information they get when taking out a loan. The form will require standard and understandable explanations for interest rates and fees incurred by the loan, such as title and processing fees. The agency is also expected to wade into the murky prepaid-debit-card market, which has grown in popularity -- and risk. The cards, which often feature celebrity endorsements, typically come with high fees and poor disclosure, making them ripe for abuse.
Senate Republicans may have once had genuine fears about the CFPB and its potential to issue onerous and invasive rules. Those fears haven’t come to pass, and it’s getting harder to take them seriously. If senators take the same balanced and fair approach to their work as the CFPB has to its, they will confirm Cordray to a full term.
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