At the Senate Banking Committee nomination hearing for CFPB Director-designate Richard Cordray, Ranking Member Richard Shelby (R-Ala), referring to a May 2 letter sent by 44 Republican Senators to President Obama, said that the Committee should not consider any nominee to be the Director of the Bureau of Consumer Financial Protection until reforms are adopted to make the Bureau accountable and referred to three reforms to the structure of the Bureau proposed in the letter. Establish a five member board of directors or Commission similar to the SEC in place of a single director; subject the CFPB to the congressional appropriations process; and establish a safety-and-soundness check for prudential regulators.
Senator Shelby said that bank regulators do not have a meaningful ability to ensure that the Director’s actions do not needlessly undermine the safety-and-soundness of banks. While some claim that the Financial Stability Oversight Council could overrule the Director, the Ranking Member referred to this check as illusory. The requirements needed for the Council to act are so onerous that in practice the Council will never be able to exercise this authority, he noted. Senator Robert Corker (R-TN) noted that before the FSOC can challenge and possibly overturn a regulation of the CFPB it must threaten the stability of the entire financial system, which he said was too high a hurdle. Mr. Cordray said that it is a high hurdle but not an inappropriate one, adding that this is a standard that does not apply to any other federal agency.
Legislation that recently passed the House, HR 1315, would require revise the current threshold and require FSOC to set aside a CFPB regulation that is inconsistent with the safe and sound operation of a US financial institution.
Chairman Tim Johnson (D-SD) said that the CFPB is an agency that the US public wants and the Director will have an important role to play. The Chair said that a vocal minority is holding the nomination of the CFPB Director hostage. The fact is that every federal regulatory agency is structured with different features. Congress decided on a certain structure for the CFPB, with some unique features. For example, the FSOC can overturn regulations of the Bureau. He said that the claim of the minority of no accountability is misplaced, noting that in 2008 a bi-partisan Senate effort helped create the FHFA, an independent agency headed by a sole Director.
Senator Shelby noted that all of the Bureau’s power is concentrated in the hands of its Director. The Director determines which rules are enacted and which enforcement actions are brought. The Director makes all hiring decisions and decides how the agency spends its resources. Because of the expansive jurisdiction of the Bureau, he said, every American will be affected by the Director’s decisions. The Director will single handedly determine the financial products consumers can buy, as well as which consumers have access to credit, and which do not. Accordingly, the Director’s decisions will impact whether Americans can buy a home, a car or even basic household goods. It is staggering the amount of control the Director will exert over daily financial choices.
Despite having such broad powers, however, there is no meaningful check on the Director’s authority. The Director cannot be removed except on extremely limited grounds of inefficiency, malfeasance, or neglect of duty. In other words, said the Senator, the Director cannot be removed for poor policy choices.
Senator Jack Reed said that the work of the Bureau must go forward, adding that delay could potentially affect consumers, especially veterans. For first time, Dodd-Frank shines light on the shadow banking system. Echoing these comments, Senator Sherrod Brown (R-OH) said that this is not the time to undermine a consumer agency created by a bi-partisan vote. The CFPB must be allowed to exercise its full panoply of jurisdiction, especially with regard to non-banks. It is time to ``put the consumer cop on the beat’’ said Sen. Brown. Senator Hagan (D-NC) said that the CFPB is a key component of Dodd-Frank and it is time to put it in place and to rein in predatory lenders.
In his testimony, Mr. Cordray said the Bureau has a broad range of tools to address consumer issues and resolve compliance issues quickly without litigation. The Bureau can also streamline disclosures and reduce paperwork burdens for lenders while clarifying documents for consumers.
Chairman Johnson is concerned that the Bureau will not have examination and enforcement powers over non-banks without a Director and will subsequently not be able to level; the playing field for banks and non-banks. Mr. Cordray agreed with the Chairman’s assessment, adding that the level playing field in this regard was a key goal of Dodd-Frank.
In his testimony, Mr. Cordray pledged not to impose further regulatory burdens on community banks and credit unions. We can exempt them and we can do two-tier regulations and I will listen to them, he said, adding that they will do well with a level playing field.