Consumer Law & Policy Blog

Senate Blocks Cordray Confirmation

Story here.

Why the CFPB Needs the Same Budgetary Authority as Other Bank Regulators

by Jeff Sovern

Ed Mierzwinski and NASDAQ/Dow Jones Newswires have reported that opponents of the Consumer Financial Protection Bureau have attached riders to appropriations bills to subject CFPB funding to the congressional appropriations process rather than the current system under which the Bureau gets funding outside that process, as is true of other bank regulators like the OCC.  To see why this matters, you have only to read New York Times reporter Gretchen Morgenson's book (written with Joshua Rosner), Reckless Endangerment (2011).  The authors explain, at pages 28-29, that when Congress created the Office of Federal Housing Enterprise Oversight (OFHEO) to regulate Fannie and Freddie in 1992, Fannie lobbied to have OFHEO subject to annual appropriations by Congress.  The authors state:

The overseer would have to beg for money to operate. . . . [That, together with other constraints,] allowed Fannie to shift the power of oversight to congressional subcommittees, run by members who could be easily swayed by the company's lobbying efforts and campaign contributions.  Once his company's oversight was in the hands of Congress, [Fannie chief executive James A.] Johnson knew that he could work behind the scenes to derail any restrictions on the company's activities that OFHEO might suggest.

We all know how that ended.  OFHEO's efforts to regulate Fannie Fannie and its fellow enterprise Freddie failed miserably.  Fannie and Freddie needed a bailout of something like $160 billion, and OFHEO has since been replaced by a new regulator.  So this is really an attempt to enable financial institutions to regulate their regulator, the CFPB, and prevent effective consumer protection.

 

Senate Could Vote on Cordray Next Week

So reports the WSJ. An excerpt :"'Bringing up his nomination for a vote before the end of the year is a priority for us,' said a spokesman for Senate Majority Leader Harry Reid (D., Nev.)."

Times Roundup

Today's Sunday Times Magazine has an article about Elizabeth Warren that explains how the Consumer Financial Protection Bureau ended up with the power to enforce the Fair Credit Reporting Act:

Warren described her motivation to enter politics by recalling the time Barney Frank called her to the Capitol during the first days of writing the latest financial-regulation bill. Warren didn’t understand much about the process but observed as representatives argued about individual issues until Frank asked, “Can everybody live with that?” When he was met with nods, he said, “Done!” and aides wrote down the agreed-upon language. Warren watched the process several times before Frank asked if anyone had anything else to add.

“I said, ‘What about credit-reporting agencies?’ ” Warren said, noting that the bill should include monitoring to make sure those companies engaged in fair practices. “Barney looks around the room and says, ‘Anybody got a problem with that?’ And they say, ‘No,’ and he says ‘Done!’ and everybody writes it down. I thought, Whooaah.” Credit-reporting jurisdiction was added to the bill. “That was the first time,” she said, “that I understood — and real well — what it means to be in the room.”

Today's Times also has an editorial titled A Push for Online Privacy and an interesting column by Chicago's Richard Thaler, When Business Can’t Foresee Outrage, discussing Bank of America's since-rescinded decision to charge consumers for debit cards.

CFPB announces new chief of staff, other senior leadership

Legal Times reports that the CFPB announced today its picks for several senior leadership jobs, including the promotion of principal deputy general counsel Meredith Fuchs to the agency's chief of staff. The agency also announced a new principal deputy general counsel to fill Fuch's old position (former deputy general counsel Roberto Gonzalez), assistant director for legislative affairs (Lisa Konwinski), and assistant director for intergovernmental and international affairs (Nicholas Rathod). The only thing it's missing now is a director.

Attack Ad on Elizabeth Warren

Simon Johnson criticizes the first attack ad directed at Elizabeth Warren at the Baseline Scenario.  The ad complains about "radical theories," which appears, in the context of the ad, to be a reference to the Occupy Wall Street protesters, but Johnson seemingly sees it as aimed at the Consumer Financial Protection Bureau, which of course was Professor Warren's brainchild. 

Suskind's The Confidence Men

by Jeff Sovern

I just finished listening to the audio version of Ron Suskind's Confidence Men: Wall Street, Washington, and the Education of a President. It purports to be a you-are-there Woodward-style account of the first two years of economic-policymaking in the Obama administration. You never know how much of this stuff to believe, given that the audio version, at least, generally does not indicate sources. Still,with that caveat, readers of the blog may be interested in at least a few items from the book:

• Treasury Secretary Timothy Geitner promised bankers while the Dodd-Frank Act was working its way through Congress that Elizabeth Warren would never become the director of the Consumer Financial Protection Bureau.
• Economic policy in the Obama administration was made very slowly in what appeared to be a failure of process. Strong personalities like Larry Summers frequently sought to "relitigate" matters on which the president had decided against them, with the result that the same issues were reviewed over and over. Summers even commented that they were 'home alone" without a grown up in charge. That may help explain why the administration moved so slowly to name leaders for the OCC and the CFPB.
• The book also describes how Goldman Sachs learned a couple of years before the subprime crisis exploded that there was a problem with some of the subprime mortgage originators (or maybe it was underwriters evaluating loans; books sometimes go a little fast when you're driving while listening to them) from which it was buying loans. Specifically, some originators sold Goldman loan pools in which a whopping 10% of the borrowers were not even making their first payments. Nevertheless, Goldman continued buying from them and selling to others. It has been reported elsewhere, of course, that Goldman went short on subprime loans for its own account. In other words, Goldman bet against subprime loans while continuing to sell them to others when it knew there were problems with them.

Examining the Call for the CFPB to Have a Commission-Structure

investors Business Daily has an editorial here, Cordray Can Wait, opposing Cordray's confirmation and urging that the Consumer Financial Protection Bureau have a commission-structure.  Let's take a look:

As Ohio's attorney general, Cordray's main focus was making Wall Street pay for the financial crisis. He sued BofA, AIG, Standard & Poor's, Moody's and other Wall Street firms on behalf of public-employee pensions. His shakedown netted trial lawyers and the unions they represent for more than $1 billion in settlements and fees.

Standard & Poor's and Moody's would be the folks that gave top ratings to toxic mortgages that later defaulted.  AIG received hundreds of billions in bailout funds, gave hundreds of millions in bonuses, and issued insurance in the form of credit default swaps that they couldn't make good on without the bailout.  And BofA took over Countrywide's toxic mortgages.  Could it be that Cordray was justified in bringing those suits?

Here's more:

Most concerning, this wannabe federal bank sheriff is in the back pocket of trial lawyers. The law firm that represented Ohio in the AIG case pumped $125,000 into Cordray's campaigns. Other firms donated $200,000 to Cordray, who plans to run for Ohio governor one day.

That's a fraction of the $2.3 million the finance, insurance, and real estate sector has donated in the current cycle to Senator Richard Shelby, the leader of the 44 Republican Senators opposing Cordray's confirmation, according to the Center for Responsive Politics.  Sounds like if Cordray were willing to be bought, he could have made more money working for the banks.  Could the fact that he didn't sell out to the highest bidder mean he's honest?  Another excerpt:

Heading its Office of Fair Lending is Patrice Ficklin, a a black civil-rights lawyers who headed Fannie Mae's racial grievance unit. She leads a team using new race-based lending data to crack down on banks that apply prudent lending standards equally to minorities.

Why is it relevant that she's black?  And what's wrong with using data to make decisions? Isn't that how it's supposed to be?  A final quote:

As Democrats set up the CFPB, the director enjoys unprecedented power, reporting only to the president. The agency is . . . funded outside the annual appropriations process . . . . In effect, it's not accountable to Congress or the American public.

Just like the OCC, except that, unlike the Bureau, OCC decisions aren't subject to overruling by the Financial Stability Oversight Commission.  Odd how the more powerful OCC hasn't generated calls for a commission. Could it be because the OCC has been captured by the banks?   When IBD says that the Bureau isn't "accountable to Congress or the American public," could they mean that it isn't accountable to the banks?  Because the OCC seems a lot more accountable to the banks than to Congress or the American public

Sheryl Harris on Opposition to Confirmation of the CFPB Director

Here.  An excerpt:

Republican senators . . . insist they will block the Consumer Financial Protection Bureau from getting a director unless the White House agrees to radical changes.

Most dangerously, Republicans want the bureau's budget to be part of the appropriations process, which not only makes its funding subject to the whims of Congress but also forces the cost onto the backs of taxpayers. The previous Congress funded the bureau through the self-supported Federal Reserve precisely to protect it from political pressures.

Unlike most other federal agencies, the Consumer Financial Protection Bureau's decisions are subject to review by a panel of other regulators. The hold-out Republicans want to make it easier for those regulators to overturn the bureau's rules.

Lastly, the Gang of 44 wants to replace the bureau's director with a five-member commission. That means that instead of enduring endless delays in affirming just one leader, the American public could look forward to five times the foot-dragging.

Enough.

American families are in crisis. They have lost homes or become anchored to cities where jobs are scarce by houses they cannot sell without taking a loss. Their kids go to college only to emerge with staggering private student loan debt they must immediately repay even if they can't find jobs. Many adults are struggling to pay off debts incurred when credit limits were just a state of mind and going through bankruptcy meant coming home to a slew of new card offers.

My American Banker Op-Ed: Don’t Let Banking Industry Capture the CFPB

Here.