Why Obama Was Right to Pick a Fight Over the CFPB's Richard Cordray

The president makes a needed, consumer-friendly act of defiance in appointing a new director of the Consumer Financial Protection Bureau.


It will be viewed by the Washington punditocracy as a tough-minded executive act defying Senate Republicans, playing to a worried liberal base, and raising a possible legal challenge with constitutional ramifications.

But President Obama's Wednesday selection of Richard Cordray, a former Ohio attorney general, to run the spanking-new Consumer Financial Protection Bureau is also just smart and necessary.

If our politics weren't quite so polarized, and folks stuck a bit more to the facts in public debate, maybe far more people would know what Cordray symbolizes. They would know that they should be happy that a frustrated White House has circumvented a Senate filibuster last month and will try to actually protect consumers.

And it's probably fitting that Cordray, who had a strong reputation in Ohio for investigating suspect mortgage foreclosure practices, is also a five-time "Jeopardy" champ. The mere existence of the agency he will head would probably stump most of the game show's contestants and viewers.

It was created out of the Dodd-Frank financial-reform legislation and inspired by the reality that seven different agencies performed at times overlapping functions in overseeing financial products involving Mr. and Mrs. Joe Citizen.

It's the agency which Elizabeth Warren, a Harvard University law professor and bankruptcy expert, was asked to set up by Obama. She was badmouthed by Wall Street as too tough and strident, while 44 Senate Republicans harrumphed about the agency being potentially too powerful and unaccountable and in need of a board of directors rather than a single chief.

Warren split to run for U.S. Senate in Massachusetts, now raising the wonderful prospect of her one day having cocktails with fellow Senate members who shafted her. Obama picked Cordray, who Warren had already tapped as the chief enforcement officer, to run the bureau.

That ultimately led to the Senate filibuster and Wednesday's recess appointment, which might become a legal dispute since Republicans are claiming Congress isn't technically in recess, thanks to some rather cynical and superficial pro forma sessions they've been holding, in a technical sense, over the holidays. They've constituted a legalistic and legislative sham.

So why should regular folks care about Cordray?

For one, we really do need some coordinated oversight of lending practices and financial products involving consumers. Creating the agency was quite a feat, especially given decades of bureaucratic drift that left multiple agencies feeling empowered to monitor bits and pieces of our consumer lives, albeit in often half-hearted and unfocused ways.

It's basic civics, but one of the more important things that a regulatory agency does -- especially a financial regulator -- involves supervision. It means having federal personnel inside financial institutions.

But in a Dodd-Frank quirk, the law splits the basic supervisory authority. One year after enactment, the agency could begin supervising banks. But it could not begin supervising non-financial institutions until after it had a permanent director.

That's why Cordray is really important.

Non-financial institutions include payday lenders, debt collectors, credit-reporting agencies like Equifax and Experian, and the whole non-bank mortgage lending sector, namely the many mortgage brokers and lenders not affiliated with some big bank.

Just take payday lenders. They are a huge sector with a notoriously questionable modus operandi, including deceptive interest-rate practices and payments that can balloon into the stratosphere. About 20 million Americans use payday loans, according to the White House, and there is no shortage of people who get stuck in deep debt tracks due to those sky-high interest rates.

The credit-reporting sector is another big area of concern, with most people clueless about the factors going into determining their ratings and, often, deteriorating credit. There are important questions about the information those firms give out to companies with which consumers deal as compared to what they might give the individual himself.

When Republicans realized they couldn't kill the agency outright, they sought to trim back its authority. They failed in most cases, but one minor success was implementation. That's how we got the oddity of its being unable to regulate large, important areas of consumer life until a permanent director was named.

It is notable that there were shifting alliances over Dodd-Frank and these important elements of implementation. For example, many community banks and credit unions saw the light and supported the law because they feared they would be at a competitive disadvantage if big institutions were supervised but non-bank counterparts, such as payday lenders, were not.

Republicans, who are often beholden to financial institutions that just don't like regulation, claimed that the agency should be run by a commission, not a director -- just like the Securities and Exchange Commission. The GOP also didn't like that the agency's funding is tied to fees paid into the Federal Reserve System, as opposed to the annual appropriations systems the politicians control.

Ultimately, they were throwing roadblocks at what history will likely underscore were a slew of needed financial reforms stemming from a financial mess culminating in the mortgage crisis.

You could even argue that after filling Supreme Court vacancies, the Obama Administration will make no appointment bigger than Cordray's. If the agency works as envisioned, it would bring citizens a lot more transparency about key portions of their financial lives -- and bring bad players to light well before a disaster like the mortgage collapse.

In an age where opinion rules, there are also facts. And, in the case of the Consumer Financial Protection Bureau, the facts seem to be on the side of a beleaguered president.