The Senate Banking Committee hearing on September 6, ostensibly scheduled to address the nomination of Richard Cordray as Bureau Director, quickly became a hearing on and an indictment of the structure of the Bureau and its lack of accountability. Digging in their heels, Republican senators expressed their intention to not approve any nominee for the Bureau’s director position until changes were made to the Bureau structure. Putting the approval of a Bureau director in limbo further delays implementation of many Bureau powers tied to the approval of a CFPB director (see CFPB Alert dated September 1, 2011), an additional benefit to the Republicans’ intransigence.
Chief among the Republican-desired changes are (1) the conversion of the CFPB’s leadership from a single powerful director to a five-member bipartisan commission; (2) subjecting the Bureau to the Congressional appropriations process rather than permitting the automatic funding based on a set percentage of the Federal Reserve Board’s income, and (3) easing the ability of the Financial Stability Oversight Council (FSOC) to override Bureau activity and decisions. Concerns about a super-bureaucracy with an independent director and no checks and balances were voiced by a very vocal minority of Republican senators who attended the hearing. This Republican position is no surprise to Democrats who supported Cordray’s nomination and the current structure of the Bureau. In May of this year, 44 Republican senators issued a letter demanding that these Bureau changes be made before a director was nominated and approved, in effect threatening a filibuster on the nomination of a director.
While Cordray was greeted cordially and informed that the opposition was not personal, he attempted to defend the current CFPB structure and assure the Republican opposition that he would be accountable to Congress and would try to work collaboratively with the other banking regulators. Nonetheless, Cordray seemed to be a pawn in the battle over the agency he had hoped to manage and was not even asked any questions by Republicans regarding his suitability for the position.
The Democrats, to date refusing to agree to any of the Republican-demanded changes, accused the Republicans of misusing the hearing process to affect legislative change in regard to a battle that was played out last year where the Democrats prevailed in the passage of the Dodd-Frank Act. Believing that the Bureau is a muchneeded check on lending abuses, the Democrats resented the use of what they considered blackmail to weaken the agency. They contended that the longer the delay in approving a director, the longer nonbank financial companies would continue virtually unregulated and at a competitive advantage to banks and credit unions.
While Cordray’s nomination will likely clear the Democratic-controlled Senate Banking Committee, he is likely to face a Republican filibuster when his nomination reaches the Senate floor. In the meantime, House Republicans have started moving on legislation to amend the Bureau’s structure and oversight. HR 1315, which has not yet been taken up by the Senate, would (1) establish a bipartisan, five-member Commission to head the CFPB; (2) lower the threshold required to set aside proposed Bureau regulations from a two-thirds vote of the FSOC to a simple majority; (3) clarify that the FSOC must set aside any CFPB regulation that is inconsistent with the safe and sound operations of U.S. financial institutions; (4) eliminate the 45-day time limit for the FSOC review and vote on Bureau regulations; and (5) require that all FSOC meetings be open to the public whenever the FSOC decides to overturn a Bureau regulation.