From the time that President Obama first mentioned the idea of the Consumer Financial Protection Bureau in 2009 — pitched in the wake of the economic collapse as part of his broader vision for financial regulatory reform — it has been followed by controversy. With its mandate to police financial products and services marketed to consumers; enforce new rules for the financial industry to provide clear, easy-to-understand information; and crack down on practices that are fraudulent or deceptive, Republican detractors saw the consumer-watchdog agency as unnecessary government intrusion into business.
Republican opposition was even strong enough to obstruct Elizabeth Warren, the former chair of the Congressional Oversight Committee who came up with the idea for the bureau, from heading it. Criticized as too aggressive in pursuing financial regulation, she was passed over for the nomination. But it was Warren who recruited Richard Cordray, a former Ohio attorney general with a reputation as one of the nation's leading consumer advocates.
When the president finally appointed Cordray as director of the CFPB in January, despite the GOP's best attempts to block it, Mitt Romney called the agency "the most powerful and unaccountable bureaucracy in the history of our nation, headed by a powerful and unaccountable bureaucrat with unprecedented authority over the economy."
Yet from Obama's perspective, after the rise of subprime loans and other predatory-lending practices that triggered the economic crisis, the bureau is an absolute necessity. "Middle-class families and seniors don't have teams of lawyers from blue-chip law firms. They can't afford to hire a lobbyist to look out for their interests," he said last summer when he announced Cordray as the nominee to head the CFPB. "But they deserve to be treated honestly."
Now four months into the job, Cordray has been busying himself with building upon the new agency's groundwork and letting businesses — including banks, mortgage brokers, private student-loan providers, credit card companies and payday lenders — know what's coming. The Root spoke with Cordray about that rocky start with congressional Republicans, his recent actions around racial discrimination in the lending industries and the best thing about building a federal agency from scratch.
The Root: What did you hope to accomplish with the bulletin you sent to lenders this month (pdf), giving notice that you will be enforcing laws against racially discriminatory lending practices, including those that have a disparate impact on protected groups?
Richard Cordray: There were multiple pieces to that. The first was to reiterate what has been an accepted view of the law for 20 years, but [a view] that is challenged and not necessarily accepted by everybody in this market.
The second piece was that the consumer bureau wasn't around 20 years ago when this issue first came up, so we had never ourselves taken any position on [the law] yet. We wanted to, as we phrased it, "give fair notice on fair lending" so that institutions have a sense of what we're looking for and can think about getting their houses in order, rather than be surprised. Thirdly, in this area we work with the Department of Justice, the other federal banking agencies, the Federal Trade Commission and others, so it's important for them to be clear on where we stand on these issues so that we can foster our working relationship as well.
TR: What responses are you getting from companies to the various bulletins and guidance documents that you've released?
RC: As you can imagine, we get a lot of different reactions from all corners, including participants in the financial industry. A lot of the comment we get is that they want the guidelines, rules and standards to be clear so they know exactly what is expected and there's, as much as possible, a minimum of surprises. We agree with that; that's only fair.
TR: Speaking of people who disagree with you, Republicans made every effort to block your appointment — not because of you in particular but because of opposition to the agency itself. What's your response to the criticism that the bureau has no oversight or accountability?
RC: Actions speak louder than words. One way I'm trying to resolve those issues is by being very responsive to Congress and going up and testifying whenever they want me to do so.
I've been up there four times in four months, and we've done some other briefings for them as well. I think it shows that we are quite willing to have oversight and that we understand the importance of coming up to Capitol Hill to talk about the work we're doing and have it understood as much as possible.
TR: In addition to traditional banks, the CFPB will also look into alternative services like check cashers and payday lenders. What practices in those industries are you most concerned about?
RC: One of the biggest changes that this bureau represents is that we have authority over a lot of non-bank participants in the financial marketplace. We're going to regulate the whole market for the first time, and we care very directly about the un-banked or under-banked.
We've identified some things that are of immediate concern. There's the deceptive and misleading marketing which happens in the payday-lending industry, as well as lead generation. That's a phenomenon where an industry of people go on the Internet and try to drum up prospective customers for payday lenders and other Internet lenders. Some of that can be misleading in terms of what use is being made of your information or what you're signing up for.
We have also pinpointed additional markets that we think need to be priorities for us, and we have taken steps to oversee the debt collectors and credit-reporting agencies. We picked them out because those are two areas where consumers don't get to choose their provider. They can't shop around, and that could lead to problems that otherwise would be avoidable for consumers. We'll go deeper into other areas over time, but that's where we stand here in our early days.
TR: In these early days, you've focused a lot on investigating practices and setting guidance. Are there plans to actually implement and enforce new rules for the marketplace, and if so, when?
RC: Our three main compulsory authorities are supervision, enforcement and rule making. On rule making, we have some rules that we've inherited from the Federal Reserve that were proposed, but it's up to us to finalize them. We have a number of rules that we are required to write relating to the mortgage market, to protect consumers against some of the worst types of abuses that occurred in the run-up to the financial crisis. The time frame for those is this year, pretty much due by January.
On supervision, we have begun supervising and examining the biggest banks, which are under our jurisdiction, and we've started our examinations of non-banks, including payday lenders and others. That work is ongoing, and it will lead to identifying and correcting many problems.
We've begun our enforcement work, which involves actually calling people to account for violations of the law, potentially through investigations and actual litigation, as opposed to the examination process. That work is ongoing as well. Those things will become more public over time as they ripen.
TR: What's been the most difficult part of setting up a new federal agency from scratch?
RC: I think the most difficult part is building an agency from scratch. [Laughs.] There are all the things you can imagine: building the processes and the sort of internal guts of an organization, the budgeting process, the financial oversight, the procurement processes, IT facilities, all the things that you kind of take for granted because most agencies have had all of that in place for years and years.
On the plus side, building an agency is exciting. Getting to do it from the beginning lets us avoid some of the mistakes people have made in the past, and recruit what has turned into a terrifically talented workforce. I think we're pretty nimble, state-of-the-art, and a lot of people are attracted to our mission. The pluses far outweigh the minuses, but there's some of both.
Cynthia Gordy is The Root's senior political correspondent.