Consumer Finance Law Blog : Consumer Finance Lawyer & Attorney : Kelley Drye & Warren Law Firm : Financial Privacy & Security

President Obama has made a recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau ("CFPB"). The President had nominated Cordray as the Director in July, but Senate Republicans blocked Cordray's confirmation last month. Yesterday's recess appointment circumventing Senate approval has already triggered criticism from Republicans, who have claimed that the President "arrogantly circumvented the American people" and called the appointment an "extraordinary and entirely unprecedented power grab."

Now that the CFPB has a director, it can exercise authority under the Dodd-Frank Act to regulate financial institutions beyond the banking industry, such as payday lenders, nonbank mortgage lenders, and certain student loan providers. Without a director, CFPB only had authority to supervise banks. In a post on the CFPB's blog yesterday, Cordray noted that such nonbank entities "led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers." He stated that oversight of these entities is a "top priority" and that the CFPB will announce more information about its oversight program in the coming weeks. The CFPB also has several other deadlines in the next year, including issuing a proposed rule on information sharing with state regulators and supervisors by July 21, the anniversary of the CFPB's official start date.

Cordray most recently served as the CFPB's top enforcement official. Prior to that appointment, he was the Ohio Attorney General, was a litigator with the law firm Kirkland & Ellis for over ten years, and clerked for Supreme Court Justices Byron R. White and Anthony M. Kennedy. As Ohio Attorney General, he brought several lawsuits against global banks, mortgage servicers, credit rating agencies, subprime lenders, and other financial institutions.

The recess appointment could come under fire in a legal challenge. The President has authority to make a recess appointment when the Senate has been out of session for more than three days. Republicans and other opponents have argued that Cordray's appointment is unconstitutional because Congress has technically remained in session and not gone on a recess. Rather, the Senate has conducted pro forma non-business sessions that last about 30 seconds per day. Democrats first used this procedure to block President George W. Bush from using his recess appointment authority during his second term. The White House and Director Cordray, however, intend to move forward with full steam.
 

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The Consumer Financial Protection Bureau (CFPB) continues to flex its regulatory muscles under the Dodd-Frank Act. Last week the CFPB divested the Federal Trade Commission of its rulemaking authority from various consumer protection laws, as discussed here. Today, the CFPB issued three additional interim final rules transferring “consumer financial protection functions” previously granted to other Federal agencies. Again, these rules duplicate existing regulations, making only technical and non-substantive changes, and do not impose any new substantive obligations on regulated entities.

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On December 16, 2011, the Consumer Financial Protection Bureau (CFPB) issued three interim final rules modifying three separate consumer protection laws. This is the first of likely many waves of regulation in the exercise of the agency’s rulemaking authority granted at its inception on July 21, 2011, under the Dodd-Frank Act. The interim final rules published today transfer the rulemaking authority originally vested in the Federal Trade Commission to the CFPB and duplicate existing regulations, making only technical, formatting, and stylistic changes. None of the proposed regulations impose any new substantive obligations on regulated entities. The rules are briefly summarized below.

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Yesterday, 45 Republican senators blocked a confirmation vote for former Ohio Attorney General Richard Cordray to be the first director of the Consumer Financial Protection Bureau (CFPB). Raj Date replaced Elizabeth Warren as interim director on August 1, 2011, the same week that Mr. Cordray's nomination was announced. As anticipated, the Republicans were nearly united in their opposition to the nomination. “Their objections have nothing to do with Mr. Cordray’s qualifications, his politics, or his character,” said Senate Banking Committee Chairman Tim Johnson (D-S.D.). Rather, in a letter sent to President Obama last May, the opposing Republicans pledged to oppose any nominee unless the CFPB’s powers are curtailed.

Republicans understand that the CFPB is "hamstrung" without a director because it can't exercise its full authority in supervising non-bank financial institutions, such as payday lenders, credit-reporting agencies, and debt-collectors. In an effort to capitalize on this leverage, Republicans demand structural change. They seek stricter oversight measures and the replacement of the director by a five-member board. Republicans also want funding for the agency to be made by Congress rather than through the Federal Reserve.

This is the first time in Senate history a presidential nominee has been filibustered because a party opposed the agency. President Obama told the press yesterday that he would continue to exert pressure to install Cordray, including a potential recess appointment during the holiday break: “I will not take any options off the table when it comes to getting Richard Cordray in as director of the Consumer Financial Protection Bureau.”
 

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On December 7, 2011, the Consumer Financial Protection Bureau (CFPB) issued a proposed policy statement addressing the public disclosure of certain credit card complaint data.

Since its launch in July, 2011, the CFPB has assumed the role of moderator between credit card consumers and their issuing banks. Consumers file complaints on the CFPB website, inputting their names and addresses, the issuing bank, the type of complaint, and the claimed loss. The CFPB then forwards these complaints to the respective credit card companies and "tracks" the investigations to ensure their proper resolution. Of the more than 5,000 credit card complaints filed with the CFPB since July, approximately 3,100 have been resolved in this fashion.

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The FTC’s final Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts was published on July 27, 2011 in the Federal Register. The policy statement clarifies that the agency will not take enforcement action under the Fair Debt Collection Practices Act (FDCPA) or the FTC Act against a debt collector for communicating with certain classes of individuals specified in the FDCPA or an individual who has the authority to pay debts out of the assets of the decedent’s estate. This final Statement will be effective on August 29, 2011.

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Starting August 1, Raj Date will replace Elizabeth Warren to run the day-to-day operations at the Consumer Financial Protection Bureau ("CFPB") until a director is appointed.  Mr. Date currently serves as a top deputy to Ms. Warren as the Associate Director of Research, Markets, and Regulations, focusing on credit cards and mortgages. Most recently, the White House was reportedly considering nominating Mr. Date as the director of the new agency. The White House ended up nominating Richard Cordray, a former Ohio attorney general, last week. 

Prior to joining the CFPB, Mr. Date founded Cambridge Winter Associates, a research organization, and pushed for the creation of the CFPB as part of Dodd-Frank. He is also a former banker with Capital One Financial Corp. and Deutsche Bank AG. In his current role at the CFPB, earlier this month he testified before Congress regarding mortgage servicing standards.

The CFPB began formal operations on July 21, while Mr. Cordray awaits Senate confirmation, which could be an uphill battle. Many Republicans plan to block any nominee unless President Obama agrees to significant structural changes for the CFPB. In the meantime, Ms. Warren plans to return to her teaching position at Harvard Law School this fall.

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The CFPB released a “progress report” on Monday tracking its achievements over the past year and goals for the immediate future, all part of the lead-up to the transfer of its authority from other agencies on July 21. The full report is available here. Describing itself as a “21st century agency,” the report outlines current projects, such as simplifying mortgage disclosure forms, and pending activities, such as the initial “larger participant” rule. The report also highlights the CFPB’s efforts to engage the public and the financial sector, detailing Elizabeth Warren’s speaking schedule over the past year, and summarized the current organizational structure and key hires. Finally, the report describes several Memoranda of Understanding signed by CFPB with other federal agencies and non-government entities to permit sharing of information and cooperation. Followers of the CFPB’s development during this start-up time will find the report a helpful summary of its activities.

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After much speculation concerning who would be nominated to head the Consumer Financial Protection Bureau (CFPB), President Obama announced plans to nominate former Ohio Attorney General Richard Cordray for the post at a White House event tomorrow. Mr. Cordray, who is now the CFPB’s top enforcement official, previously clerked for Supreme Court Justices Byron R. White and Anthony M. Kennedy, and was a litigator with the law firm Kirkland & Ellis for over ten years. As Ohio Attorney General, he brought several lawsuits against global banks, mortgage servicers, credit rating agencies, subprime lenders, and other financial institutions.

In a statement, President Obama praised Mr. Cordray’s track record in “advocating for middle class families” and “looking out for ordinary people in our financial system.”

Professor Elizabeth Warren, who for a while had been the frontrunner for the nomination, also received praise from President Obama for devising the idea for the new agency and for getting it off the ground. More recently, President Obama had considered former banker Raj Date as a frontrunner for the position.

Mr. Cordray’s nomination still must clear the hurdle of Senate approval, and Senate Republicans have reiterated their opposition to any nominee so long as the agency’s structure is not modified. Thus, the White House’s plan to obtain Senate confirmation within the next two weeks, before the August 8 planned start of Senate recess, seems unlikely. Senate Republicans may also attempt to prevent the Senate from breaking for recess in the first place in order to preclude President Obama from making a recess appointment. In any event, the agency, which is scheduled to open for business on July 21, is likely to do so without a director and hence will probably be unable to exercise some of its powers.

Over the next few weeks, one can expect a dramatic showdown between President Obama and Senate Republicans, as they escalate the dispute over Mr. Cordray’s candidacy and the structure of the CFPB.

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Though still without a director, the Consumer Financial Protection Bureau ("CFPB") has published its first notice and request for comment in the Federal Register (76 Fed. Reg. 38,059 (June 29, 2011)). The CFPB seeks comment on development of a rule to define the “larger participants” who will be subject to supervision for compliance with federal consumer laws. The Frank-Dodd Act limits the scope of the CFPB’s oversight over non-depository covered person to “a larger participant of a market for other consumer financial products or services,” and directs the CFPB to define, by rule, what that means. CFPB rulemakings may progress under the Treasury Secretary’s 1066(b) authority even if a director is not named by the July 21, 2011 transfer date.

The CFPB seeks comment on two main issues: (1) the criteria to be used to define a “larger participant,” and (2) the categories of markets that should be covered in the initial rule. Criteria may be tailored by market and may be either absolute or relative. The CFPB is also considering using multiple criteria in combination. Among the markets currently being considered for inclusion in the initial rule are debt collection, consumer reporting, consumer credit and related activities, money transmission/check cashing, pre-paid cards, and debt relief services. These markets cover a wide range of companies and are in line with the enforcement priorities articulated by Elizabeth Warren in her March 17 testimony before the House Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services.

The CFPB is also considering the establishment of a registration program for some or all covered persons in accordance with the Consumer Protection Act §§ 1022(c)(7) and 1024(b)(7). Any such registration program could increase regulatory reporting burdens for entities that fall within the scope of the CFPB’s supervisory authority.

Obviously, the proposal could have far-reaching consequences for companies that are deemed “larger participants,” including exposure to periodic examinations and requirements to file compliance reports. Companies who wish to participate in the CFPB’s maiden rulemaking will have until August 15, 2011 to submit their written responses. The final rule must be issued by July 21, 2012.
 

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Earlier this week, the Eighth Circuit Court of Appeals affirmed a federal trial court decision denying TCF National Bank’s motion to preliminarily enjoin enforcement of the Durbin amendment to the Dodd-Frank financial reform legislation. As reported in an earlier post, in April a federal district court in South Dakota rebuffed TCF’s attempt to halt the implementation of the rule, which would limit large banks’ ability to charge debit fees to merchants. In its opinion, the Eighth Circuit expressed the view that TCF is ultimately unlikely to prevail in the suit, and that the Durbin Amendment, which distinguishes between large and small issuers of debit cards, bears a rational relationship to the government’s interest in protecting small financial institutions.

TCF continues its fight in the federal district court proceeding, and today the court will hold a scheduling conference to determine the applicable timetable.

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On June 8, the Senate fell six votes short of the 60 votes needed to postpone for one year the implementation of a ceiling on the debit fees which banks charge to merchants. The Durbin amendment to the Dodd-Frank financial reform legislation would cap these fees, and Senator Durbin notes that a final rule is expected to be unveiled within a matter of days. Merchants have encouraged passage of the rule, which could cut the average 44 cent fee down to the Fed’s proposed level of 12 cents.

As reported in an earlier post, the Durbin amendment has drawn an ongoing challenge in federal district court in South Dakota alleging that it violates small banks’ constitutional right to equal protection. Now that the Senate has declined to slow down the rollout of the rule, the federal court challenge is likely to become a higher-stakes battle accompanied by greater attention from industry participants.

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In a change of course, President Obama is considering Raj Date, rather than the current chief architect Elizabeth Warren, to head the newly-formed and soon to be empowered Consumer Financial Protection Bureau (CFPB). Mr. Date has over 10 years of experience as a banker and as a consultant to financial institutions. Since February he has been the CFPB’s Associate Director for Research, Markets & Regulations, heading up the agency’s efforts to develop a regulatory plan for products including credit cards and home mortgages. Mr. Date’s extensive industry experience could make him a more plausible candidate for the post than Ms. Warren, whose candidacy has been adamantly opposed by Senate Republicans.

However, many opponents are likely to remain. As discussed in a prior post, Republicans have led an effort to change the structure of the CFPB. In addition, 44 Republican Senators have vowed to oppose the nomination of any director so long as the structure of the CFPB remains intact. Even for a nominee who has walked in the shoes of banks for years, it would likely be a contentious fight along partisan lines.

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A Republican-led U.S. House of Representatives Financial Services subcommittee approved legislation yesterday in an attempt to limit the powers of the new Consumer Financial Protection Bureau (“CFPB”), which is scheduled to open for business on July 21. The legislation, which likely would never become law since it would need to be approved by the Democratic-run Senate and President Obama, would have the CFPB director position replaced by a five-member bipartisan commission and make it easier for the new Financial Stability Oversight Council to overturn CFPB-led regulations. The subcommittee also approved a proposal to prevent the CFPB from exercising certain authorities until a director is in place – a confirmation process that is shaping up to be lengthy and contentious. The Obama administration currently is considering director candidates with Elizabeth Warren, the architect of the CFPB, at the top of the list. Republicans have come out strongly in opposition to Ms. Warren’s nomination.

Some consumer advocates see the goal of these bills as an attempt to send a message to the CFPB to be less aggressive as it moves forward. Others view the legislation as an attempt to ensure that proper checks-and-balances are in place at the new Bureau. The full House committee plans to meet on May 12 to consider these bills.

We should expect lots of vigorous debate along political lines in the months leading up to the July grand opening of the CFPB.

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