CFPB’s Cordray Built Bridge Fast and Well, But Maybe Too Far, Critics Say

By Gregory Roberts

Richard Cordray fashioned an impressive record of activism and achievement as the first-ever director of the Consumer Financial Protection Bureau, former CFPB staffers, consumer advocates, and even sometime detractors from the legal and the financial services industries say.

But Cordray’s damn-the-torpedoes focus and commitment thrust the CFPB into hazardous territory, painting a bull’s-eye on his back and potentially jeopardizing the bureau’s future as the political landscape has shifted, several of those CFPB-watchers agree. “He pushed the envelope a little too far,” Alan Kaplinsky, a partner at Ballard Spahr LLP, who is a regular critic of the CFPB, told Bloomberg BNA. “That may be his Achilles’ heel.”

Several congressional Republicans have urged President-elect Donald Trump to fire Cordray after he takes office on Jan. 20. Trump met Jan. 11 with newly retired Rep. Randy Neugebauer (R-Texas), one of the agency’s chief critics and, potentially, its next director.

Democratic President Barack Obama handed Cordray a tough assignment by appointing him in 2012 to take over the agency, established under the 2010 Dodd-Frank Act in response to the financial crisis, Tom Pahl, a former CFPB lawyer who is a partner at Arnall Golden Gregory LLP in Washington, told Bloomberg BNA.

“You had an agency created almost on a party-line vote, and there were people opposed to what the CFPB was doing almost from Day One, and that is a very difficult environment to operate in,” he said.

Nonetheless, Pahl said, Cordray could have done a better job of understanding that reality and setting up the agency for a long and productive run.

“One of the things, to be a good steward of an institution, is to prepare for what might happen after you leave,” Pahl said. “I don’t think the CFPB is in a good spot for dealing with a Republican administration and a Republican Congress after three and half years under Director Cordray’s watch, and that is something he needs to own.”

Telling Example

The poster child for Cordray’s detractors is the PHH case.

In 2015, the CFPB moved against PHH Corp., a New Jersey mortgage lender, for violating the Real Estate Settlement and Procedures Act (RESPA) in the way it handled mortgage reinsurance premiums. That interpretation contradicted an earlier view of the law endorsed in writing by the Department of Housing and Urban Development and adopted widely in the mortgage industry.

PHH appealed to the CFPB, and an administrative law judge upheld the bureau and told PHH to pay $6.5 million. PHH appealed that decision to Cordray, who affirmed the ruling—and increased the penalty to $109 million.

PHH then went to court to challenge the agency, and in October, the U.S. Court of Appeals for the District of Columbia Circuit ruled against the bureau, saying its summary reinterpretation of RESPA had failed to provide the company due process.

The court went further and said the governance structure of the CFPB spelled out by Dodd-Frank is unconstitutional because it gives too much power to Cordray, as sole director of an agency who is subject to removal only for cause. The court struck the for-cause clause, meaning the director serves at the pleasure of the president. The CFPB is seeking a rehearing of the case.

“We’re left to wonder if that same D.C. panel would have ever reached the constitutional question around the bureau’s structure if the bureau had not been so aggressive in its reinterpretation of RESPA,” Benjamin Olson, a partner at BuckleySandler LLP in Washington and former CFPB deputy assistant director for regulations, told Bloomberg BNA.

“Some of the things the CPFB has done over time, and just the broad sweep of things, has just reinforced the notion that they were overreaching,” Pahl said. “It makes you an easy target for people who oppose the agency.”

Up and Running

Cordray gets credit from across the business-consumer spectrum for his success in building the agency from scratch.

“It’s kind of remarkable how quickly it got up to speed,” Andrew Miller, senior vice president of regulatory policy for PNC Financial Services Group Inc., said Jan. 7 on a CFPB-focused panel at an American Bar Association conference in Washington. “It’s issued a tremendous amount of rules in a short period of time.”

Miller said his gripe is with policy making by the bureau outside the rulemaking process—what critics call regulation by enforcement. But he said bureau staff members were generally responsive to his company’s concerns and engaged in seeking resolutions.

“Cordray came in and he took an agency that was zero and brought it up to speed very, very quickly and made it a fair consumer cop on the beat,” Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group, told Bloomberg BNA.

Mierzwinski pointed to enforcement and investigative actions by the CFPB that have returned $12 billion to 27 million consumers.

“I think his legacy is a legacy of a founding leader who built a tremendous operation that has served the goals that Congress set out extremely well, better than anybody could have ever thought,” Mierzwinski said.

Ohio Origins

Cordray, 57, grew up and attended public schools outside Columbus, Ohio, before graduating from Michigan State University and the University of Chicago’s law school.

Cordray served as a law clerk for Judge Robert Bork, who was then on the same court that would issue the PHH decision and for U.S. Supreme Court Justices Byron White and Anthony Kennedy. In 1987, Cordray was an undefeated five-time champion on the television quiz show, Jeopardy!

A Democrat, Cordray entered politics in a successful run for the Ohio state House in 1990. He lost elections for the U.S. House, state attorney general and U.S. Senate before winning two terms as Franklin County treasurer, during which he was named “county leader of the year” in 2005 by American City & County Magazine.

Cordray was elected state treasurer in 2006 and attorney general in 2008. He was defeated for re-election in 2010 by former Sen. Mike DeWine. As the CFPB was being organized, he was picked to head its enforcement efforts, and later was elevated to the top job.

“He cares a lot about good government and he cares a lot about fairness,” C. Hunter Wiggins, a partner at Jones Day in Washington who has known Cordray since the 1990s and was hired by him as an enforcement manager at the CFPB, told Bloomberg BNA. “He’s a guy who could do almost anything and he has chosen to devote a lot of his professional time to the government.”

Republican Ire

Congressional Republicans have directed steady fire at the CFPB almost since its inception, arguing that its regulatory overreach stifles businesses.

In 2016, the House Financial Services Committee approved the Financial Choice Act, sponsored by Chairman Jeb Hensarling (R-Texas), which would overhaul Dodd-Frank. The bill did not advance and died with the end of the 2015-16 Congress, but Hensarling has said he will introduce a similar measure this year.

The 2016 version would have rechristened the CFPB as the Consumer Financial Opportunity Commission and placed it under a five-member commission instead of a single director. It would have brought the agency under the congressional appropriations process; the agency now is funded outside that process, through the Federal Reserve Board.

The act also would have subjected proposed regulations to a stronger cost-benefit analysis and to review by Congress. It would have charged the agency with promoting free-market competition, and it would have rolled back proposed rules on payday lending and arbitration clauses in consumer contracts.

There are other potential lines of attack on what the CFPB has wrought under Cordray as well. The payday lending and arbitration rules could be imperiled if Congress invokes the Congressional Review Act, along with rules on debt collection and prepaid cards. The constitutional issue raised in the PHH case and some other anti-CFPB litigation poses a more remote threat to everything the agency has done.

Imperiled Legacy

Cordray’s legacy “will depend a lot on what happens after he leaves the bureau,” Gerry Sachs, a lawyer with Paul Hastings LLP in Washington and former senior counsel for policy and strategy with the enforcement office of the CFPB, told Bloomberg BNA.

“If the bureau itself is fundamentally restructured or reined in, that will probably be considered part of his legacy, fairly or unfairly,” Olson said. “I say ‘unfairly’ because so much of what the bureau has done is what the bureau was expressly told to do our authorized to do under the Dodd-Frank Act”—although the PHH action was not part of that mandate, Olson said.

In the world of financial services regulation over the last few years, the role of the CFPB has been “monumental,” Kaplinsky said—and the impact of Cordray “huge,” whether for good or ill.

“I think everybody would agree that he practically single-handedly made people pay a great deal of attention to compliance with consumer financial services laws,” Kaplinsky said, “and he did it in a rather rapid fashion and covered a multitude of areas. “They’ve certainly created a lot of work for lawyers.”

To contact the reporter on this story: Gregory Roberts in Washington at gRoberts@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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