Substantive discussions of regulatory policy and partisan wrangling were both on the front burner at the Senate Banking Committee’s hearing last week on the nomination of Richard Cordray to run the Consumer Financial Protection Bureau.
When talking policy, Cordray promised to streamline regulations when possible. He also said that credit unions and banks that follow the rules will benefit from regulations that punish bad actors.
“Better regulations help honest businesses,” he said during his testimony.
Cordray also noted that the bureau’s efforts to combine the disclosure forms required by the Truth in Lending Act and the Real Estate Settlement Procedures Act would make things easier for lenders and give consumers more information was an example of a regulation that is a “win-win.”
Although Cordray’s credentials, which include experience as Ohio attorney general and several other elective offices in that state, were praised by committee members in both parties, committee Republicans said they still wouldn’t support him unless the Obama administration agrees to make structural changes in the CFPB.
“This vocal minority insists on rehashing the same debate Congress had last year when it created the CFPB as an accountable yet independent regulator. The fact is that every regulatory agency is structured with different features that make it accountable. Each agency has a unique combination that fits its mission and independence. Last year, Congress decided on a structure for the CFPB which borrows some accountability features from other regulators but also includes several new features unique to the consumer agency,” Senate Banking Committee Chair Tim Johnson (D-S.D.) said in opening the hearing.
Sen. Richard Shelby (R-Ala.), the panel’s top Republican, defended his party’s refusal to consider any nominee until the CFPB’s structure is changed to have it run by a five-person board rather than just a single director.
He said the current structure gives an unelected and unaccountable bureaucrat a blank check to make rules that could further add to the regulatory burden of businesses and prevent the creation of needed jobs.
The House passed legislation that would have the CFPB run by a five-person board and it would make it easier to overturn regulations. The Obama administration and Senate Democrats oppose the changes.
When the discussion returned to policy, Cordray struck a conciliatory tone. Cordray, who is currently the CFPB’s top enforcement official, said its efforts to combine the disclosure forms required by the Truth in Lending Act and the Real Estate Settlement Procedures Act would make things easier for lenders and give consumers more information was an example of a regulation that is a win win.
He said credit unions and community banks would be able to better compete when the CFPB regulates nonbank institutions because this would level the playing field. He noted that many nonbanks helped cause the financial crisis because they made loans that were destined to fail. Several Democrats noted that because of the way the financial overhaul bill that created the bureau was written, the bureau won’t be able to regulate nonbanks until a director has been confirmed.
The CFPB’s regulations apply to all financial institutions, but it is only has direct supervisory authority over those with assets of $10 billion or more.
But some credit unions fear that that the bureau will increase their regulatory burden and put additional strains on their balance sheets at a time when the economy is still struggling.
“With the bureau you are seeing a change in a role of the government from focusing and safety and soundness to having an added role in increasing the rules on consumer issues,” said Nevada Federal Credit Union President/CEO Brad Beal in an interview. Cordray noted during his testimony that he had good relations with the banking and credit union trade associations in Ohio.
The Ohio Bankers League endorsed his nomination.
Ohio Credit Union League President Paul Mercer stopped short of endorsing Cordray but wrote when Cordray was nominated that “I am confident that, given the opportunity, you will diligently represent the mission and Consumer Financial Protection Bureau’s mission and purpose as its director." Ohio Credit Union League General Counsel John Kozlowski was at the hearing and Corday introduced him to the senators before his testimony. Neither CUNA nor NAFCU have taken a position on Cordray’s nomination.