On April 23, the Senate Banking Committee, chaired by Tim Johnson, D-S.D., conducted a routine oversight hearing of the Consumer Financial Protection Bureau (CFPB), one of several new agencies created under the Dodd-Frank Act of 2010. Richard Cordray, a former treasurer and attorney general of Ohio with ambitions to be governor and maybe senator one day, is director of the CPFB by way of a recess appointment.
The Dodd-Frank Act established a procedure similar to that which provides that the Federal Reserve chairman testifies twice a year on monetary policy and the Treasury the same on international economic policy.
On the House side, Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, departed from the practice of his predecessor, Spencer Bachus, R-Ala., the bleeding heart Republican and outspoken supporter of JPMorgan Chase CEO Jamie Dimon.
Like his colleagues, Hensarling opposes bank regulation, on the ground that it impedes economic growth and job creation. When he was chairman of the Subcommittee on Financial Institutions, Bachus went so far as to oppose deposit insurance premium assessments because they forced banks to spend money that could otherwise boost the economy.
Now Hensarling has told Cordray not to testify, because he was not legitimately appointed, since Congress was not in recess when the administration decided to appoint him. The purpose of this maneuver was to avoid Republican opposition to the structure of the CFPB. The appointment of another official, to the National Labor Relations Board (NLRB), made on the same day as Cordray’s, has already been struck down, so the administration is vulnerable to the risk that this could happen to Cordray, but unlike the NLRB, the CFPB has only a single director, so there is a risk that its regulations could be invalidated, and Republican opponents would love to see this happen.
The position of Cordray and the administration is that industry often opposes reforms initially, but over time it will come to realize that the CFPB will be helpful in improving its relationship with consumers and in managing litigation exposure. Of course, for this to happen, the banking industry would have to fear the litigation, but there is little reason for fear as long as pliant state attorneys general, such as Cordray and his colleagues in the case of the mortgages servicing settlement and U.S. Attorney General Eric Holder, in a recent well-publicized policy statement, refrain from enforcement actions that could threaten the “too big to fail” business model.
Against all this background, the Senate hearing provided a forum for Democrats to make their case once again that Republicans are blocking Cordray’s confirmation because they don’t like the agency and they believe that the CFPB should be run by a board, rather than by a single individual and that the so-called “prudential regulators” should have greater input in spite of the clear decision embodied in Dodd-Frank to remove consumer regulation from the industry-friendly banking regulators and concentrated in the CFPB.
In addition to defending Cordray’s appointment, Johnson and Kay Hagen, D-N.C., used the hearing to call for more liberal treatment of community banks and credit unions, a theme that is usually promoted strongly by most of the committee’s Republicans, including the new ranking Republican, Michael Crapo, R-Idaho, and Jerry Moran, R-Kan.
However, for Moran this was a day to question regulation of loans by affiliates of auto dealers. Crapo mentioned community bank concerns over the new mortgage rules issued in January, but he used his question time to open a new front by challenging the agency’s data collection practices, a line Moran joined when his turn came.
Crapo took several rounds of questions to develop a theme based on a lengthy article by Bloomberg the previous week. Crapo charged that “the CFPB has allocated more than $20 million for collecting and tracking customer credit card and spending habits of more than 10 million Americans.”
Crapo’s tone became edgy as he went on, “The size of this data collection and the amount of money being spent by the agency are a cause of concern for me and should be for those Americans whose credit card, checking accounts and other data are being sent monthly to the CFPB.”
He expressed frustration with what he considered an inadequate response by the agency to his inquiry and then the disclosure of these activities in the press.
Cordray responded that the agency is merely buying the same data other agencies have been getting for years, from the same sources, and he added that these data are necessary for the agencies to do the very reports and cost/benefit analyses that Dodd-Frank requires and Congress demands. After he delivered these remarks, he punctuated them with a satisfied smile.
Crapo charged forward and demanded that Cordray provide a legal analysis to justify the data program. Cordray responded that the agency isn’t interested in information on individuals, but Crapo made clear he is uncomfortable with the idea that the fate of consumers’ data should depend on what an agency might be interested in at a given time, and he was clearly uncomfortable with Cordray’s inability to assure the senator that personal data could not be retrieved in some manner from the data the agency are buying.
At the conclusion of the exchange, Cordray promised to work with Crapo to do his best to reassure him that the program is, in effect, benign. There will be more to come on this issue at the next semiannual hearing, if not before.
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