Hours before he was praised as a consumer watchdog in President Obama's State of the Union address, Consumer Financial Protection Bureau Director Richard Cordray on Tuesday fulfilled a promise and testified to a House panel led by Republicans openly skeptical of his recent recess appointment.
Though officials of the government's newest agency had appeared before Congress a dozen times during the past 18 months, Rep. Patrick McHenry, R-N.C., who chairs the House Oversight and Government Reform subcommittee handling financial services, opened the hearing by saying, "despite an appointment that is constitutionally questionable, [Cordray should] deliver definitive responses about how he will implement and enforce the unparalleled powers of his new office."
Cordray said he was proceeding with full confidence in the validity of his appointment, preparing to step up enforcement against dishonest businesses and implementing his agency's hiring push, which comes at a time of constrained federal hiring. "My vision for the consumer bureau is that it will work to make consumer financial markets operate fairly in order to protect consumers, support honest businesses and play a crucial role in helping to safeguard the overall economy," he said.
McHenry citied business community worries about "uncertainty," proposing that Cordray mimic the practice of the Securities and Exchange Commission by publishing an annual advance regulatory framework "to give clarity to public and businesses affected."
Cordray replied that while CFPB is still new, "I think we can satisfy you on that."
McHenry expressed concern that the bureau would force businesses wary of prosecution from offering new products, providing consumers with only "plain-vanilla choices."
Cordray said his team would "see what it can to do encourage innovation" in products such as credit and debit cards. "We're not intending to constrain everyone in a straightjacket," he added. "No regulator knows enough to tell the market the right answer."
He also assured the panel that while CFPB's mission included delving into unfair practices of entities that previously were largely unregulated -- such as nonbank banks, including payday lenders -- he planned to follow case law and long-standing interpretations the Federal Reserve and the Federal Trade Commission use. "It is not our point to try to revolutionize existing law and go off in some wild, unexpected direction," he said. "We will follow procedure to build credibility in our work."
Acknowledging some vagueness in the definition, for example, of the word "abusive" as applied to lender practices," Cordray corrected what he said was a misquote in the press that implied the new bureau's agenda includes going after business practices it simply doesn't like rather than following the law. McHenry cautioned, "while you are thinking and imagining, trillions of dollars in assets are waiting" for your actions.
CFPB, to which President Obama paid a visit earlier this month, has seen its budget, which comes from the Federal Reserve, rise to $300 million and employs 757 people. That number is expected to rise to 1,200-1,500 in the next few years, Cordray said.
Rep. Ann Marie Buerkle, R-N.Y., questioned the bureau's not following the federal pay scale, noting that one recent website notice asked for a training professional who would make $103,000 to $187,800.
Cordray said he suspects trainers would be paid at the low end of the payband, but that "hiring, paying and promoting are being done on the federal banking agency pay scale." CFPB's salaries are actually 1 percent lower than those at the Fed, he added. "Our budget is capped, and unlike other financial agencies, we can't raise fees, and we have frequent audits," he said, mentioning a recent "clean audit" from the Government Accountability Office.
The new director assured panelists that the bureau is working to craft its first independent rule-making (it recently completed others inherited from the Federal Reserve). He said he is coordinating with other financial agencies to avoid duplication and would be willing to enter into memoranda of understanding with, say, the Federal Deposit Insurance Corporation on the issue of regulating community banks, or the Justice Department on prosecutions. CFPB also is working closely with the Education Department on student loan abuses, Cordray said.
He plans to set up small business review panels and advisory councils, as he did as state attorney general in Ohio, to get input from credit unions and community banks. He assured lawmakers that he will protect the privileged information the bureau acquires from company books from being turned over to third parties, though he noted CFPB strives for transparency and is subject to the Freedom of Information Act.
On the issue of Cordray's recess appointment, some of the harsher questioning came from Rep. Dennis Ross, R-Fla, who told him, "You will have your hands full on legitimizing not only your appointment but your agency."
Cordray would say only that, while he had read and agreed with the Justice Department's opinion on why the recess appointment was lawful, "this is a big job that requires all my attention." The bureau is an independent agency, he noted, adding "we don't take direction from the White House."
Oversight panel chairman Darrell Issa, R-Calif., told Cordray, "It is my hope that there won't be any long-term controversy over your appointment." But he pressed the new director on whether he had consulted counsel on a "Plan B" to mitigate any future problems with making bureau decisions stick in the event that his appointment is struck down in court.
Cordray replied that he'd give it some thought, but said it would create a dilemma. "We're here to enforce the law and protect consumers, and we either do it or we don't. It's not tenable to act as if I were not appointed."
Rep. Gerry Connolly, D-Va., told the director he had misgivings about recess appointments used by presidents of both parties, considering them "an executive branch encroachment on the prerogatives of the legislative branch." But he assured Cordray that he wouldn't use his appointment in a future debate on the issue, saying the minority of Republican senators who had long blocked the president from appointing a director of the consumer bureau had themselves acted unconstitutionally.
"I have not heard you demagogue on Wall Street versus Main Street," said Rep. Trey Gowdy, R-S.C. But he added his South Carolina constituents in the nonbank bank businesses are wary that products such as overdraft loans might be banned.
"We don't look at banning products but at unfair practices," Cordray said. The two agreed that consumers have a responsibility to educate themselves.
Asked to evaluate Cordray's performance, John Carey, spokesman for the consumer coalition called Americans for Financial Reform, said: "There are reasons that Director Cordray received a wide range of support, across the political spectrum, from those that know and worked with him in Ohio. He is fair, tough and thoughtful, and those traits were on full display yesterday."