Richard Cordray’s nomination to become the director of the Consumer Financial Protection Bureau will be in the hands of the full Senate now that the Senate Banking Committee has approved his nomination along a 12-10 party-line vote. But will the CFPB ever have an official leader in place? Not at this rate.
It has been fourteen months since Congress passed the Dodd-Frank Act, and the new government agency still has no formal leader.While not challenging Cordray’s credentials, forty-four Republican Senators have vowed not to support any nominee to serve as director. They, like others, protest that a single director would have too much power and not be subject to enough oversight. In a letter sent to the President earlier this year, they wrote, “We believe that the Senate should not consider any nominee to be CFPB director until the CFPB is properly reformed.” They are calling for Democrats to make structural changes to the CFPB, including eliminating the director position and replacing it with a five-member commission, bringing the agency’s funding under congressional control, and making its operations subject to more oversight from other bank regulators. The forty-four Senate Republicans are enough to block Cordray’s approval.
So what happens to the CFPB if Senate Republicans and Democrats refuse to budge? The CFPB has been doing a lot of work without an official leader in charge, but it cannot exercise some of its key powers without a director. For example, the Inspectors General of Treasury and the Federal Reserve Board have opined that the CFPB needs a director in order to exercise its authority to supervise nonbank institutions. The Dodd-Frank Act required the CFPB to implement a risk-based supervision program to oversee nondepository covered persons for compliance with federal consumer financial laws. This supervision program may look at all sizes of nonbank residential mortgage companies, payday lenders, and private student lenders. In other markets for consumer financial products or services, the program can cover only institutions that are “larger participants.”
The CFPB solicited comments this summer regarding how best to define those “larger participants.” But it cannot prescribe rules defining the scope of nonbank institutions subject to its supervision. Nor can it conduct exams of such entities without a confirmed director.
Coupled with this problem of not being able to exercise all of its powers without a confirmed leader is the fact that, without an official leader, it is not clear who is providing direction for the agency. That said, the CFPB is still moving forward and exercising the powers that it does have.