Consumer protection bureau gets designated leader on eve of opening

The government's newest agency will open shop officially this week with a motivated and experienced staff, an array of early achievements and an unconfirmed director nominated at the 11th hour.

The White House on Sunday announced that President Obama's choice to lead the Consumer Financial Protection Bureau is Richard Cordray, the fledgling agency's enforcement chief and a former law professor who served as Ohio's attorney general during the housing foreclosure crisis.

Cordray "has spent his career advocating for middle-class families . . . and looking out for ordinary people in our financial system," Obama said.

Many in the consumer activist community had hoped Obama would press ahead with his original candidate, Harvard University professor Elizabeth Warren, the acting director of the nascent agency who has become a lightning rod among Republican critics.

So in an unusual pivot to address the politically messy situation, the president went on to say, "I also want to thank Elizabeth Warren not only for her extraordinary work standing up the new agency over the past year, but also for her many years of impassioned leadership and her fierce defense of a simple idea: Ordinary people deserve to be treated fairly and honestly in their financial dealings. This agency was Elizabeth's idea, and through sheer force of will, intelligence and a bottomless well of energy, she has made, and will continue to make, a profound and positive difference for our country."

Warren, in a yearlong effort to publicly articulate CFPB's mission, as recently as July 14 was telling a sometimes-tense House hearing, that she envisions a "data-driven" agency. "I believe in power of markets, but they don't work if people don't have good information," she said. "We're opposed to complicated forms and fine print. And we want to help Americans answer two questions, 'Can I afford this, and is this the best deal I can get? ' "

Warren, who is known inside the agency as "Professor Warren" but whose title has been assistant to the president and special adviser to the secretary of the Treasury on CFPB, will return to teaching at Harvard and ponder a possible Senate run.

It is she, and not Condray, who has garnered much media attention as de facto head. Recent profiles in Bloomberg Businessweek and Time have narrated her efforts -- without even a formal nomination -- to stand up an agency while Republican lawmakers and a well-financed Wall Street and banking lobbies maneuver to block her rise and slow-walk the output of new regulations. The bureau is charged in the 2010 Dodd-Frank financial reform law with oversight powers starting July 21 to police unfair, deceptive or abusive lending practices.

Largely out of the limelight, CFBP staff -- currently about 400 under the Treasury Department -- have been working overtime to meld operations from seven agencies under authority of 18 statutes. In two floors of a little-noticed office northwest of the White House (the long-term plan is to move to 300,000 square feet at a building being renovated at 1700 G Street N.W.) the agency has been hiring at a reported rate of 80 workers a month and, by one projection, will surpass 1,000 employees in offices nationwide.

Its lofty budget of $500 million comes not from Congress but from the Federal Reserve. Its second quarter spending totaled $36 million and included a $3 million human resources contract.

Achievements So Far

The bureau's notable early accomplishments, Warren told the House Oversight and Government Reform Committee, include setting up an Office of Service Member Affairs under Holly Petraeus (wife of the general who is now CIA director). It is working with the Defense Department's Judge Advocate General's Corps to make sure the families of deployed or returning service members do not lose their homes to foreclosure because of "broken credit markets."

She also touted the bureau's new plain English one-page mortgage disclosure form, presented under the slogan "Know Before You Owe." The public chose the final version of that form, determining via Web vote which of two side-by-side drafts was clearest.

Other bureau accomplishments include building relationships with independent bankers in all 50 states, an effort that began in January and was completed in April, three months ahead of schedule.

CFPB also has worked with credit card providers to simplify their documents so consumers can better understand fees. It has set up a hot line for consumer complaints on issues such as unfair practices by credit card firms, for example. And in June, it asked for public comment on six outlined nonbank areas that the bureau, still defining the scope of its work, could oversee, such as debt-collection firms and vendors of prepaid credit cards.

"We will stay in our lanes and not stray into insurance or investment products," Warren told the House hearing. "We have a real chance at the bureau to make markets work better."

Many in the financial industry agree. Dan Berger, executive vice president for government affairs at the National Association of Federal Credit Unions, which originally opposed creation of the bureau, said Warren's team has been "fantastic in reaching out to us, in being inclusive, and in getting our input as well as that of individual credit unions."

Warren has been "saying the right things for two years, but the devil is in the details," he added. "We're cautiously optimistic that they won't impose too much of a layer of regulatory burden."

Kathleen Day, a spokeswoman for the nonprofit advocacy group the Center for Responsible Lending, said CFPB staff "is doing the best they can under siege, doing their jobs while the House tries to throw up roadblocks."

The July 21 turnover date "is a legal milestone and a psychological milestone as they rev up," Day said. It appears, she added, that they're working hard with long hours "not simply to create new bureaucracy but a new organization" that, in the Center for Responsible Lending's view, would be best served by having a strong leader rather than the five-member commission that some critics have proposed. "The industry that brought us the financial mess wants a commission so they can influence it in a classic tactic to make it ineffective," she said.

Republican Resistance

On Capitol Hill, Republicans have been categorical in opposing both Warren and the bureau, portraying it as a massive and unchecked intruder into free-market decision-making.

In May, 44 Republican senators sent a letter to President Obama stating they will not confirm any nominee, regardless of party affiliation, to be the director of CFBP "absent structural changes that will make the bureau accountable to the American people."

Also in May, the House Financial Services committee approved three bills that would alter the Dodd-Frank law's language on CFPB. One would replace the director slot with a commission, another would strengthen the powers of the body called the Financial Stability Oversight Council to set aside CFPB regulations, and a third would require a Senate-confirmed director to be in place by July 21 or else the bureau must continue to be run by the Treasury Department.

The bills won backing from such groups as the American Bankers Association and the Independent Community Bankers of America. House Financial Services Committee Chairman Rep. Spencer Bachus, R-Ala., said, "Despite the overheated rhetoric from opponents, none of these bills weakens consumer protection in any way, shape or form. In fact, these bills will help make sure the consumer protection rules issued by the CFPB are consistent, fair and do not endanger the safety and soundness of financial institutions. Endangering the safety and soundness of financial institutions is bad for our economy, and a bad economy is bad for consumers."

Bachus has consistently criticized the nascent CFPB, even mocking it on his website for fielding a softball team.

When the House passed an appropriations bill altering the way CFPB is funded, the White House on July 13 issued a veto threat. The legislation would "compromise the bureau's independence, as well as [place] limitations on the bureau's expenditures to levels that would severely undercut the agency's statutory responsibility to oversee consumer financial products such as mortgages and credit cards," the statement said. "Not only would the bill's funding limitation severely curtail hiring and startup investments that are already under way, but it would also impede supervision, limit the bureau's consumer response services, prevent the ramping up of citizen financial literacy improvements and delay the implementation of financial protection programs for older Americans."

Warren, working amid the Sturm und Drang with no job security, has proceeded to set priorities and assemble a team.

"Half of the budget and employees will be in supervision and enforcement," she told the House hearing. "A quarter will be in financial education and consumer complaints, and the remaining quarter will be in research and rule writing." She said she was committed to staff education, conducting frequent "lunch and learn" events and creating a "robust research team that can get something that really works for American families."

In hiring, Warren said, she valued management and financial industry experience, but acknowledges a perennial challenge for financial agencies. "We don't set our own salaries, that's done by statute," she told the House hearing. "And we've been blessed with people incredibly smart who could make more money somewhere else, but who value the opportunity to answer the call to public service. I worry how long we can keep them when the siren song of more money is heard. Every time we make someone smarter for the bureau and the American people, we also make them more attractive to employers."

Uncertain Future

If, as is likely, July 21 arrives and no director has been confirmed, then CFPB will continue under the nominal direction of Cordray and Treasury Secretary Timothy Geithner using guidance from the parent agency that doesn't necessarily address such a unique state of limbo. The staff is apt to pursue few new initiatives pending resolution of the political firestorm, observers say.

Staff members and outside backers were heartened in April when a key financial industry figure, Jamie Dimon, chairman of JPMorgan Chase, wrote approvingly of CFBP in a letter to shareholders: "We need to create a Consumer Financial Protection Bureau that is effective for both consumers and banks," he wrote. "It has been widely reported that we were against the creation of a Consumer Financial Protection Bureau. We were not -- we were against the creation of a stand-alone CFPB, operating separately and apart from whatever regulatory agency already had oversight authority over banks . . . However, we fully acknowledge that there were many good reasons that led to the creation of the CFPB and believe that if the CFPB does its job well, the agency will benefit American consumers and the system."

During two appearances on Capitol Hill, the de facto leader Warren was hit with a variety of brickbats from Republicans. Several criticized the fact that her agency's budget, like that of all financial regulators, did not come through Congress. Some tried to pin her down on whether she planned to use Dodd-Frank's authority to ban financial products deemed too risky (she declined to say).

Rep. Patrick McHenry, R-N.C., chairman of the House Oversight and Government Reform Subcommittee on the Troubled Asset Relief Program, Financial Services and Bailouts of Public and Private Programs, blasted Warren over a scheduling conflict that cut short her first testimony. (Democrats, at the second hearing, apologized to her for that treatment.) And Rep. Darrell Issa, R-Calif., chairman of the full oversight committee, said Warren had interfered in discussions by state attorneys general about resolving a mortgage industry lawsuit involving improper foreclosure procedures. He said she had violated the Freedom of Information Act by releasing overly redacted documents.

He relied on the work of Judicial Watch, a conservative research group whose leader has said the bureau, "is being born in an atmosphere of secrecy and cover-up. And the fact that the CFPB has been unwilling to abide by FOIA law certainly makes it appear the agency has something to hide from the American people."

As the grueling session was ending, Warren said, "Last year, we fought hard to get this agency into law. I had thought the fight was behind us, but obviously I didn't understand the politics of the situation."