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Richard Cordray to head consumer protection bureau

Tess Vigeland Jan 4, 2012

Tess Vigeland: And aren’t we glad our recesses didn’t look like this? Today President Barack Obama threw down against his opponents in Congress — in the Senate, to be specific. And appointed Richard Cordray to head up the Consumer Financial Protection Bureau.

The White House nominated the former Ohio attorney general last year, but Democrats could not muster the 60 votes necessary to confirm him. And Republicans have used Senate rules to stay technically in session — even while on vacation. So in Cleveland today, the president indicated he’d had enough.

Barack Obama: Now’s not the time to play politics while people’s livelihoods are at stake. Now’s the time to do everything we can to protect consumers, prevent financial crises like the one we’ve been through from ever happening again — that starts with letting Richard do his job.

Many Republicans have opposed the CFPB from its inception as part of the Dodd-Frank financial reform law. And they are set to challenge his recess appointment, which they say did not happen during recess.

So what happens now? For some answers we’re joined by Rob Blackwell, Washington bureau chief for American Banker. Welcome.

Rob Blackwell: Hi. Happy to be here. Thanks for inviting me.

Vigeland: So, I supposed the question here is, you know: Is this finally going to allow the Consumer Financial Protection Bureau to do what it is supposed to do?

Blackwell: You know, ostensibly it would seem to — because, you know, you’ve put a director in place. But the legal authority here is really questionable. And so, what’s really going to end up happening is: anything the CFPB does to regulate non-banks is going to wind up thrown into court.

Vigeland: And again that’s because this was a recess appointment — but not just a recess appointment, but an appointment during a time when some members of Congress say they weren’t in recess.

Blackwell: Right. There are really two legal issues at play here. One is that it’s a recess appointment when the Senate technically, officially isn’t recess. So there’s a question of whether or not Obama really can make the recess appointment. Legal issue No. 2 is that the Dodd-Frank law says that a director has to be confirmed by the Senate to exercise its broader powers over non-banks. That’s check cashers and payday lenders — those kind of people.

Vigeland: Mortgage brokers.

Blackwell: Right, exactly, mortgage brokers. It’s fairly clear, the statue — if you look at it, it says has to be confirmed by the Senate. And Richard Cordray — even if he’s recess appointed — he’s not confirmed by the Senate. What you’re going to hear is — the Obama White House is going to say: “Look, there’s no difference between a Senate confirmed and a recess appointment.” But a lot of Republicans and a lot of — privately — Democrats think that’s not true. And they worry that anything that Cordray does as CFPB director could be challenged in a court of law and could be overturned.

Vigeland: OK then. Let’s say Richard Cordray — tomorrow — decides he’s going to go after payday lenders. What happens?

Blackwell: I think very quickly you’re going to see either the payday lenders or the U.S. Chamber of Commerce — or some other industry group affected by it — they’re going to file suit in a court of law that says: President Obama wasn’t allowed to recess appoint Cordray. And even if he was, Cordray was not allowed to use the powers of the CFPB to go after non-banks.

Vigeland: So, what’s the way out of this? I mean, is there any way forward, given that the parties — kind of — aren’t talking to each other?

Blackwell: I don’t see a good way forward. I think that for the foreseeable future — certainly to the end of the presidential election — you’re going to see a CFPB that’s going to try and be activist — it’s going to try and flex it’s muscles a little bit and go after these non-bank lenders. And lawsuits are going to result from that and they’re just going to fight it out in court. And that’s going to take a while to resolve itself.

Vigeland: And in the meantime, it’s consumers who are stuck in the middle.

Blackwell: Yeah, absolutely. You know, it sounds great… [But] I think president Obama probably did something that politically helps him, but on policy will end up hurting the agency that he’s trying to promote — because anything that that agency does now will be under this legal cloud and this legal threat. And we’re going to see that go on for some time to come.

Vigeland: Rob Blackwell is the Washington bureau chief for American Banker magazine. Thanks so much for talking us through this.

Blackwell: Sure. Thank you very much for inviting me.

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