A rudderless ship?
Unless and until the Senate confirms President Obama’s appointment of Richard Cordray as Director, or the President makes a valid recess appointment, the CFPB can’t come close to fulfilling its mission. It can’t supervise non-banks or bring enforcement actions against them. And it can’t engage in any rule-making under its authority to prohibit “unfair, deceptive and abusive” trade practices. While the CFPB can finalize rules it’s inheriting from the Fed, and, I suppose, even propose new rules under existing federal consumer financial services laws like TILA, ECOA, and the FCRA, that’s pretty much all the rule-making it can do. And since the CFPB’s rule-making staff consists mostly of former staffers from the Fed and the other banking agencies, and Cordray is an enforcer not a rule-writer, I’m not expecting to see any ground-breaking developments on the rule-writing front in the near future.
Will Cordray be confirmed? I doubt it. Republicans have already said they won’t confirm any appointee, and unless important structural changes are made, including the substitution of a 5-person commission for a single director. While President Obama has said that he won’t agree to any of the changes the Republicans want, I expect he will eventually realize that he needs to make a deal with the Republicans. And a recess director appointment by the President can’t happen unless and until the Senate recesses, something the Republicans have vowed not to do.
Why, then, did President Obama appoint Cordray? Here are my speculations, based solely on my read of the tea leaves. First, he had to appoint someone—it’s been a year since Dodd-Frank’s enactment. Second, it’s been reported that Elizabeth Warren told the President she had had enough and would be returning to her teaching position at Harvard Law School. Since Treasury Secretary Geithner—the acting director—has other fish to fry, President Obama needed someone to take over Ms. Warren’s de facto director role.
And why did Cordray agree to this appointment since he probably knows that the Senate will never confirm him? That brings me to what I believe will be the CFPB’s focus for the remainder of the year: supervision of large banks and enforcement.
Enforcement, enforcement, enforcement!
Cordray, of course, comes to the CFPB with an enforcement background. He got his spurs by being the first state attorney general to investigate and sue a company who he accused of robo-signing affidavits related to mortgage foreclosures. He has previously stated that the CFPB will be fast out of the gate on July 21 in seeking to enforce the federal consumer laws. Thus, I expect Cordray will soon be announcing one or more large enforcement initiatives, something that will make a media splash. Residential mortgage loan servicing, including robo-signing, seems to be an ideal target since Cordray has experience here and we know the CFPB played a role in counseling other agencies in their negotiations with the large mortgage servicers. Plus, the possibility that Cordray is considering running for Ohio Governor in 2014 could influence his choice of initial CFPB targets.
Preemption of state laws
Although not really the CFPB’s issue, the most important immediate issue raised by Dodd-Frank Title X concerns the future of OCC preemption. In particular, the big questions are whether Thomas Curry, when he gets confirmed by the Senate as the next Comptroller of the Currency, will follow Acting Comptroller Walsh’s position that the OCC’s broad “category” preemption rules remain in place and, if so, whether the courts will agree. The Treasury disagrees with the Acting Comptroller’s position and, unfortunately, it’s likely a cloud of uncertainty will hang over this important issue for many months to come. In the meantime, national banks and federal thrifts that follow the OCC’s preemption rules and ignore most state consumer laws risk being sued by state attorneys general and plaintiffs’ class action lawyers who have circled today’s date on their calendars.