The Consumer Financial Protection Bureau (CFPB) held the first meeting of its Consumer Advisory Board (CAB) in Washington on Feb. 20. The town hall-style session consisted of four parts: 1) an introduction of CFPB Director Richard Cordray; 2) a 20-minute speech by Cordray; 3) comments by CAB members on Cordray’s speech; and 4) audience comments on Cordray’s speech.
The Dodd-Frank Act appears to have advanced the art of establishing advisory boards whenever a given interest group is expected to be served by legislation, and the CAB is one of the advisory boards created under the Act. By covering meetings of these boards, one can gain insight into how the agencies are implementing Dodd-Frank and what the issues are. That is the hope, at least.
By way of background, the banking industry campaigned vigorously against creation of the CFPB, enlisting Republican congressmen to plead that it would be dangerous to separate the function of consumer regulation from so-called prudential regulation conducted by the mainline financial regulators. However, those regulators had so badly fumbled this task that the Republican arguments served mainly to make them look like instruments of the industry, rather than to affect the debate over whether it was time to take all of the consumer regulation and concentrate it in one entity, the CFPB, which would be liberally funded by the Federal Reserve but independent and led by a single director.
Having lost the battle over the creation of the agency, the Republicans are now calling for reform of its structure, with a board running the Bureau, rather than a single person, and more accountability over how the money is spent. The debate over whether a board or single director is the better format appears to be inconclusive.
In an effort to gain leverage over the design of the CFPB, Senate Republicans refused to allow Cordray, a former attorney general of Ohio, to be confirmed. President Barack Obama responded by giving Cordray a recess appointment, and opponents are now challenging the appointment as unconstitutional. Since a National Labor Relations Board appointment was recently invalidated, critics of the Bureau and the president hold out hope that Cordray’s appointment could be invalidated, that all of the actions of the Bureau could be challenged, since he is the sole leader, and that his votes as a member of the FDIC might allow actions of that agency to be challenged as well. Meanwhile, the original designated head of the CFPB, Harvard Law School’s Elizabeth Warren, who could not be confirmed by the Senate, is now a member of the Senate and of the Senate Banking Committee, which has jurisdiction over the CFPB.
At first glance, the CAB appears to be a bit unwieldy, as roughly two dozen members, a mixture of consumer advocates, fund managers, bankers and consultants, sit awkwardly on the stage and wait to be recognized by the chairman. So far, despite the pledge of transparency, CFPB events have either been literally scripted or set up in such a way as to minimize spontaneous interaction among the participants.
There were references to further sessions to be held in the afternoon, but so far, they appear to be closed. If the Securities and Exchange Commission advisory committees are any indication, it is risky to take advisory committees too lightly, because under the Advisory Committees Act, they are empowered to make recommendations to the agency that the agency has to consider. Some of these could end up as legislative proposals and ultimately as statutes.
A Wiki check of Cordray finds him identified, first of all, as a Democratic politician, and this is precisely correct. CFPB watchers should keep in mind that Cordray almost certainly has a campaign for governor in his future, or even his present. This raises the question of whether it is a good idea to put someone with a personal political agenda in charge of a regulatory agency.
Interestingly, he clerked for Judge Robert Bork and for two Supreme Court justices, Byron White and Anthony Kennedy, and in 1986 was an undefeated winner of Jeopardy!, which apparently is a television quiz program. How such an intelligent person can be such a dull speaker is an open question. Perhaps a couple decades of law practice dulls the mind.
Cordray’s appearances indicate that he may have borrowed the playbook of former FDIC Chairman Sheila Bair, structuring agency events so as to focus on the leader. When he speaks at length, as he did at this meeting, he manages to take a superficially boring subject and make it even more stultifying as he repeats classic bureaucratese that the agency is “committed” to standing up for consumers.
It is hard to believe that anyone in the audience learned anything from the speech. Rather, the meeting had a flavor of a church service or a speech by the leader of an authoritarian society, at which the audience received the Word, then marveled at the wisdom of the leader and bore witness to the wisdom of his pronouncements. One is reminded of the character who says, “Enough about me. What do you think about me?”
Another theme of the speech was that the Bureau would help restore the confidence of consumers in the market for financial products. A cynic might say that the idea is to restore the confidence of consumers so they can be fleeced again. This particular cynic has warned that tomorrow’s toxic products are being invented today.
American Enterprise Institute’s Alex Pollock, not a cynic, has a different view of why restoring confidence, a major objective of Dodd-Frank, could be problematic, because, “A confident investor is a stupid investor.”
Cordray also spoke repeatedly of a “pathway to opportunity” that is supposed to be available to hard-working Americans if it is not blocked by barriers such as lack of access to credit on reasonable terms. For cynics, it is only a short stem from the “pathway to opportunity” to the “Road to Serfdom” if consumers are managed by a symbiotic alliance of a handful of entrenched firms with an array of unaccountable captured regulators. William and Mary Peterson developed the model of the “regulated consumer” decades ago, and it may find its fullest realization by “too big to fail” banks and the financial regulators under Dodd-Frank.
The Cordray speech apparently was sponsored by the letter “D,” as he built the speech around the themes of the “debt” traps, deception, dead ends (on the pathway to opportunity) and discrimination.
Although there was nothing new in Cordray’s speech, and nothing very interesting, it was noteworthy for his proclamation that enforcement by the agency will encompass the controversial theory of “disparate” impact, which, as he explained, allows for charges to be brought based on the impact of an entity’s conduct, regardless of intent.
There were a couple of “conservative moments” during the otherwise uneventful discussion of the meaning of the thoughts of the leader. When the floor was briefly opened to comments, two lawyers spoke up independently on behalf of the right of consumers to litigate their complaints, rather than submit to arbitration agreements they have no role in drafting. One of the lawyers cited the Seventh Amendment, and the other cited the conservative jurist J. Harvie Wilkinson III, of the Fourth Circuit as saying that people can’t be forced to abide by such agreements, which represent “naked coercion independent of any basis in law.”
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