CFPB ALERT: Cordray Confirmation as CFPB Director is a Watershed Moment for Consumer Protection in the United States
On July 16, 2013, after a lengthy partisan standoff, the United States Senate confirmed the nomination of Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB). The confirmation marks a watershed moment in
U.S. consumer protection as it solidifies the full implementation of the CFPB’s authority and removes any realistic near-term prospect of Congressional action to restructure and water-down the extraordinary powers of the CFPB.
Sen. Elizabeth Warren (D-MA), a principal force behind the CFPB’s creation and Cordray’s appointment, stated: “With Director Cordray’s confirmation, we will be able to say loudly, clearly, and with confidence:
the consumer agency is the law of the land and is here to stay.”
The political fight over the CFPB director position began on July 17, 2011 when Cordray was initially nominated. At the time, the full implementation of the CFPB was cast in doubt given that Democrats had lost their filibuster-proof
status in the Senate during the 2010 elections. Key Republicans vowed to stifle any efforts to staff the CFPB’s leadership until Democrats agreed on structural changes in the agency.
In early January of 2012, President Obama “recess appointed” Cordray to the position before formally nominating him to the post in January of this year. The legality of the recess appointment was cast into doubt by federal court decisions and the U.S. Supreme Court’s grant of certiorari in Noel Canning v. NLRB – a challenge to President Obama’s use of the recess appointment power. Because significant powers of the CFPB are personal to the director, the validity of Cordray’s appointment was key to the full implementation of the CFPB’s sweeping powers.
To combat the Republican filibuster effort, Senate Majority Leader Harry Reid (D-NV) proposed packaging a July 2013 vote on Cordray’s nomination with those of stalled Environmental Protection Agency, Department of Labor, and District of Columbia Circuit Court of Appeals nominees in an attempt to force Senate Republicans to either confirm the nominees or run the risk of Senator Reid pursuing changes to the Senate’s filibuster rules – the so-called “nuclear option.” Instead, during the July 16 morning session, senators led by Sen. Reid and Sen. John McCain (R-AZ) reached an eleventh hour compromise on the filibuster, avoiding the nuclear option and advancing the vote on Cordray’s appointment. At 5:00 p.m. (EST), the Senate confirmed Cordray’s appointment in a 66-34 vote, thereby ending years of political wrangling, clarifying the legal status of Cordray’s appointment, and effectively signaling a “white flag” for Republican restructuring of the CFPB.
THE IMPACT
As previously described by Troutman Sanders (see here), without a director, the CFPB’s powers were limited to: interpreting the federal consumer protection laws, supervising large banking institutions, and enforcing a limited subset of the consumer protection laws.
Title X of the Dodd-Frank Act endows the director, and not the CFPB itself, with many of the CFPB’s broad powers to supervise financial institutions of many types and sizes and to enforce virtually all of the federal consumer protection laws.
Cordray’s 2012 recess appointment purportedly triggered such powers, but doubts about the legality of his appointment also raised questions about the powers of the agency. Thus, yesterday’s Senate confirmation cemented the binding effect of the CFPB’s activities pursuant to its full authority.
The powers of the CFPB now are solidified – and those powers are sweeping. As a reminder, the CFPB has no supervisory board; its director is appointed to a lengthy, five-year term; and its budget is not subject to appropriations since it is provided by the Federal Reserve. The CFPB holds supervisory authority over huge swaths of the financial services industry, including all depository institutions with greater than $10 billion in assets as well as many nonbanks in the consumer reporting and debt collection arenas (those with more than $7 million and $10 million in annual receipts, respectively). Not only are the powers sweeping, the CFPB is shaping up as an agency determined to exercise those powers to their full degree. This was evident in the CFPB’s new fair lending guidelines for auto lenders (see here) which seek to fundamentally reform the indirect auto lending market by issuance of a “bulletin” and the implicit threat of enforcement action. Without detailed explanation, a sufficient foundation in evidence, or much industry input, the Bureau announced the intent to bar common financial arrangements between auto dealers and financing companies on the grounds that those practices created a disparate, negative impact when credit is extended to certain groups.
Moreover, the CFPB’s power to interpret consumer protection policy and laws at its prerogative was demonstrated yet again in its recent bulletins to the debt collection industry. There, it supplanted decades of Fair Debt Collection Practices Act (FDCPA) jurisprudence in announcing that all financial institutions that are regulated under the Dodd-Frank Act and collect debts, including original creditors who have never been regulated as debt collectors, are subject to Federal regulation pursuant to a set of principles that amounts to a wholesale application of prohibitions developed under the FDCPA.
With the Cordray confirmation, the last major question mark over that independence and powers has been removed. Going forward, the financial services industry will be indeed dealing with a “new cop on the beat” – and a powerful one at that.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
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