Expert on consumer credit laws and regulations.
The Obama-appointed head of the federal government’s financial watchdog agency is stepping down, putting a question mark over consumer protection in credit cards, banking, payday loans and other financial markets.
Richard Cordray, director of the Consumer Financial Protection Bureau, will leave the agency by the end of November, an agency spokesman confirmed.
Cordray departs with three major rule-making initiatives – on payday loans, debt collectors and bank overdraft loans – still on the drawing board.
Another major initiative, a rule restricting mandatory arbitration of disputes, was completed in July but repealed by Congress in October, marking a setback for the agency. President Trump signed the repeal bill Nov. 1.
Unfinished business at CFPB
- Debt collection: Regulation on debt collectors, the No. 1 source of complaints, would strengthen and modernize rules written back in 1977.
- Overdraft loans: Costly form of credit charged by checking accounts is a financial drain on consumers who often don’t realize they can opt out, CFPB analysis found.
- Payday loans: Short-term lenders for amounts over $500 would have to determine that borrowers are able to repay, under rule not yet finalized.
CFPB’s standing is at stake
Cordray’s departure raises the question of whether a replacement picked by the White House will have the consumer-protection stance for which Cordray was known. Formerly Ohio’s attorney general, Cordray worked with agency CFPB creator Sen. Elizabeth Warren, D-Mass., to set up the the federal consumer watchdog, and has served as its first and only director since it opened in 2011.
“If [President Trump] appoints somebody whose mission is to take away consumer protections, there will be a big fight,” said Lauren Saunders, associate director of the National Consumer Law Center (NCLC).
The NCLC, the Center for Responsible Lending and other consumer advocates applauded Cordray’s tenure at the agency, which saw $12 billion in refunds and debt forgiveness returned to nearly 30 million consumers.
Under the Dodd-Frank Act, the agency’s acting deputy director David Silberman would serve as acting director until a replacement is nominated by the White House and confirmed by the Senate. But some business advocates are urging Trump to use federal appointment rules to name an acting director of his own.
“We hope President Trump will use his authority under the Federal Vacancies Act to appoint an acting director who will listen to customers rather than special interests,” Dennis Shaul, CEO of the payday loan industry group Community Financial Services of America, said in a statement.
The new director should also work to soften the impact of the agency’s payday loan rule on short-term credit, he added.
The banking lobby group Consumer Bankers Association said Cordray’s departure should be the spark for Congress to reorganize the bureau under a multimember commission, rather than a single director.
Questions about future of payday and auto-title loan rules
The CFPB announced a final rule restricting payday and auto-title loans in October, but has not made the rule official with publication in the Federal Register. It was unclear Wednesday if Cordray’s departure might undercut the rule from taking effect in 2019.
There was no word from the White House on Wednesday regarding the choice of a successor for Cordray.
Major CFPB accomplishments
- Crackdowns on credit card issuers for shoddy add-on products generated more than $2.8 billion in refunds for card users
- Regulation on reloadable prepaid cards set consumer protection rules for new product that acts as a substitute bank account for many
- A series of mortgage rules that cleaned up exotic loans that people couldn’t repay, and streamlined disclosures
- Consumer complaint database that took more than 1.2 million complaints about financial services, helping resolve disputes and providing a resource on companies’ behavior
“Consumers across the country will be watching closely to see whether the president will choose a director who will side with them over predatory lenders,” Rachel Weintraub, general counsel of the Consumer Federation of America, said in a statement.
An expected departure
Cordray’s departure is not unexpected, as his term ends in July 2018 and he is thought to be planning to run for governor of Ohio.
Opponents such as U.S. Rep. Jeb Hensarling, R-Texas, chair of the House Financial Services Committee, have called for his firing as an overly powerful bureaucrat who has made credit more expensive and less available for consumers.
After Cordray announced his resignation, Hensarling released a statement saying, “We are long overdue for new leadership at the CFPB, a rogue agency that has done more to hurt consumers than help them. The CFPB tramples on the fundamental economic rights of American citizens, taking away their choices and opportunities.”
Hensarling, who has announced he will retire from Congress at the end of his term in 2018, has been spoken of as a possible successor to head the CFPB.
Controversial from the start
The consumer bureau was created by the Dodd-Frank Act in the wake of the 2009 financial meltdown and foreclosure crisis that followed.
Since it opened, the CFPB has seen pushback from businesses and deregulation-minded Republicans, who say its structure puts an undemocratic amount of power in its single director.
A court case challenging the constitutionality of the agency’s structure under a single director, who is insulated from removal except for cause, is pending in federal appeals court in Washington.
President Trump’s previous appointments to consumer protection roles have been relatively uncontroversial. His acting chair at the Federal Trade Commission selected Thomas Pahl, a deregulation-minded Republican who has worked within the agency since 1990, to head the FTC’s bureau of consumer protection in February.
In October, Trump named as FTC commissioners Joseph Simons, as chairman, a former head of the agency’s bureau of competition, and Rohit Chopra, an attorney and consumer advocate who formerly worked as assistant director of the CFPB.