January 5, 2012
After months of pushback from Senate Republicans, President Obama announced Wednesday that he would claim use of a never-before-used executive power that forces the Senate to adjourn, giving him a window to install Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB) and circumvent the attempts to block Corday’s appointment.
The Republicans’ issues are not specifically with Cordray but with the CFPB itself, as they have said they would not approve any director without first seeing significant changes to the bureau. Cordray's nomination was initially approved along party lines by the Senate Banking Committee in October, but Senate Republicans filibustered the appointment and are reportedly now considering going to court to fight the recess appointment.
Obama’s announcement came during a speech on the economy in Shaker Heights, Ohio, a suburb of Cleveland. He said that Cordray will “be in charge of one thing: looking out for the best interests of American consumers. His job will be to protect families like yours from the abuses of the financial industry. His job will be to make sure you’ve got all the information you need to make important financial decisions.”
The CFPB has direct supervisory authority over financial institutions with assets greater than $10 billion, but financial institutions of all sizes are subject to its regulations. It was created as a result of the Dodd-Frank Act and is an independent agency housed within the Federal Reserve.
With a director, the bureau will now be able to assume regulatory authority over financial entities not currently subject to federal regulation, such as payday lenders and check cashers, in addition to banks and credit unions. It will also be able to act on the large number of consumer protection regulations that have been transferred to its authority, including regulations covering lending, overdrafts, electronic transactions and savings, among others. The concern for credit unions is that a fully-functional CFPB will serve as yet another regulatory body in what some argue is an industry already oversaturated with regulation.
“The recess appointment awakens a new beast,” NWCUA CEO John Annaloro said. “This is a new regulator for credit unions in addition to the existing zoo of regulatory authorities. While the CFPB will only directly regulate financial institutions over $10 billion, all of the directives and pronouncements of CFPB will apply to all financial institutions, including our smallest credit unions. Under one of the proposed structures, it appears oversight on new CFPB rules, reporting and examination will become an unfunded mandate passed along to state regulators for state charters, and the NCUA for federally chartered credit unions.”
The executive power Obama used to make the recess appointment is spelled out in Article 2, Section 3 of the Constitution. In the event of a disagreement about when Senate chambers will adjourn, the president may “adjourn them to such time as he shall think proper.” The power has reportedly never been used before, and while the White House has determined it has the authority to go ahead with the appointment, Senate Republicans are likely to argue that they have never formally recessed.
Others, meanwhile, question the bureau’s design in general, particularly in regard to its far-reaching regulatory authority.
“Credit union actions during the financial crisis did not trigger the need for a new ‘federal protection agency,’” Annaloro said. “Failings in the banking side did. The CFPB should only act as a parole board for the sector guilty of committing the crimes against consumers. Credit unions are consumer cooperatives. As such, having the Feds police consumer groups appears to be a big-government oxymoron.”
Cordray currently serves as enforcement chief at the CFPB and is a former Ohio attorney general. He is also an undefeated five-time “Jeopardy!” champion and holds a masters degree in economics from Oxford University.
Credit Union National Association (CUNA) President and CEO Bill Cheney said in a statement that his association “has met with Mr. Cordray at the Consumer Financial Protection Bureau and the Ohio League has developed a strong, professional relationship with him. The fact that the agency now has a director holds ramifications for credit unions, other financial institutions and financial service providers that have been unregulated at the federal level before now.’’
Questions or Concerns? Contact Matt Halvorson, Anthem Editor: firstname.lastname@example.org.