By Pamela J. Bethel
Now that President Obama has used his recess appointment power and installed Richard Cordray as head of the new Consumer Financial Protection Bureau (CFPB), Cordray has wasted no time in asserting his priorities and getting started with his regulatory agenda.
Under the Dodd-Frank law that set up the CFPB to curb abuses by financial institutions and protect consumers, the agency can’t take certain steps unless it has a permanent director, not an acting director. Republicans had stalled Cordray’s confirmation in the Senate in an attempt to force a revision of the agency’s structure, which they say gives a single director too much power.
Now, the GOP and business interests are considering filing a court challenge to the recess appointment on the grounds that it is unconstitutional. Opponents may also try to make the case that Dodd-Frank’s language permits full CFPB powers to be exercised only by a director who is “confirmed by the Senate,” which Cordray was not.
However, that shouldn’t be the first thing to focus on. Cordray announced on Jan. 5, 2012, that he is launching a program to supervise “nonbanks,” which have mostly operated without federal regulation in the past. Nonbanks include many types of financial services providers, including payday lenders, mortgage originators and servicers, credit-reporting agencies, and private student lenders.
While any constitutional challenge to Cordray’s nomination winds through the courts, this initiative will be in full force.
In a speech at the Brookings Institution on Jan. 5, Cordray said that in his view, most of the problems in the financial crisis “were created by non-bank institutions without regulation.”
So all sorts of financial institutions should now consider themselves on notice. They must put their houses in order and engage in serious compliance programs. If they are engaging in practices that the CFPB might consider abusive or predatory – even practices that merely demonstrate a lack of transparency in the terms they offer to consumers – they need to change their ways, or face a new regulator that will want to bring a few cases and make an example or two in the industry.