Republicans and Democrats in the Senate are headed for a showdown over Richard Cordray, the man responsible for implementing major elements of the Dodd-Frank Wall Street reform law.
Senate Majority Leader Harry ReidHarry ReidThe DC bubble is strangling the DNC Dems want Sessions to recuse himself from Trump-Russia probe Ryan says Trump, GOP 'in complete sync' on ObamaCare MORE (R-Nev.) will call for a vote this coming week on Cordray, who is serving as the recess-appointed director of the Consumer Financial Protection Bureau (CFBP).
Senate Republicans, however, say they will filibuster Cordray unless changes are made to the bureau, which is charged with enforcing consumer financial protection laws. Republicans want it made more accountable to Congress.
Democrats argue that blocking a nominee to extract changes to the law is an abuse of the Senate’s filibuster rule, and say the so-called nuclear option — a controversial maneuver to change the Senate’s rules with a simple majority vote — is back on the table if Republicans do not end their obstruction of nominees.
The CFPB was one of the chief reforms of the Dodd-Frank Act, which Congress passed in the wake of the 2008 financial crisis, but the bureau has been mired in controversy since its inception.
In February, 40 Senate Republicans signed a letter to President Obama stating “we will continue to oppose the consideration of any nominee, regardless of party affiliation, to be the CFPB director until key structural changes are made to ensure accountability and transparency at the Consumer Financial Protection Bureau.”
Three more Republicans have since signed on.
“We have a letter with 43 senators where we raise three reforms. The White House hasn’t addressed any of that,” said Don Stewart, a spokesman for Senate Republican Leader Mitch McConnellMitch McConnellOvernight Finance: Scoop – Trump team eyes dramatic spending cuts | Treasury pick survives stormy hearing Mnuchin: Tax reform shouldn't add to the deficit Trump taps NY Jets owner to be UK Ambassador MORE (Ky.). “There are simple reforms and they haven’t addressed anything.”
Republicans want a bipartisan board of directors created to oversee the bureau; they want it subjected to the annual appropriations process, similar to other agencies; and they want “a safety-and-soundness check for the prudential regulators.”
If the Senate fails to approve Corday, he will have to step down at the end of this year.
Obama circumvented GOP opposition in January of 2012 when he installed Cordray atop the CFPB with a recess appointment. Obama’s move fired up the Democratic base during an election year, but it has created problems for the consumer watchdog agency.
Republicans argue Cordray’s appointment violated the Constitution because the Senate was not in a formal recess when it happened. The upper chamber was convening periodically in pro-forma sessions during a week when most lawmakers were away from Washington.
In January, the U.S. Court of Appeals for the District of Columbia struck down the recess appointments Obama made to the National Labor Relations Board on the same day he appointed Cordray.
McConnell argued the court’s decision “now casts serious doubt” on the constitutionality of Cordray’s appointment.
If Cordray’s appointment is ruled invalid in court, it will raise questions about the regulations promulgated under his leadership. Senate confirmation of his nomination next week would put to rest similar debates about future regulations or enforcement actions under Cordray.
The National Consumer Law Center argued in a February 2012 memo that the CFBP would have all of its powers even without a director in place, but some business groups would likely challenge that assertion in court.
“A more careful analysis shows that Congress authorized Treasury to perform all of the Bureau’s powers, as they became effective, until a director was appointed,” the memo asserts.
A memo drafted in February by the law firm Barnett, Sivon & Natter argues that a review of the statutory provisions shows that the power of the agency is given to its director, and that the bureau acts through him.
“In short, without a valid Director, the CFPB cannot issue regulations, take enforcement actions, or take other actions that affect third parties,” the memo states.
Bartlett Naylor, a financial policy advocate at Public Citizen’s Congress Watch, said the regulatory implications of Cordray stalling in the Senate are hard to predict.
“I’m not sure it’s that rules 1, 4 and 5 go out. It’s a big mess,” he said.
Naylor said the battle on the Senate floor “puts into high contrasts some of the contests in Washington” such as who in Congress favors strong consumer protections and who does not.
Naylor and other consumer advocates argue the reforms of the CFPB pushed by Republicans and the banking industry would eviscerate its power.
“It’s much easier to slow down rules when you have a split commission. The pace of rules passing through [Securities and Exchange Commission] and the [Commodity Futures Trading Commission] has been very slow,” he said.
“Nobody has denied Richard Cordray’s qualifications,” said Tom Feltner, director of financial services at Consumer Federation of America.
Feltner cited the Office of the Comptroller of the Currency as an example as an agency with a single director and independent funding that has issued strong proposed guidance on the consumer impact of bank payday loans.
“Consumers deserve an agency that is able to take the same type of decisive action when consumer protection issues are raised,” he said of the CFPB.