The day that had been speculated about since the stunning election of Donald Trump as president and the D.C. Court of Appeals’ ruling in PHH Corp. v. CFPB has come. Richard Cordray officially is out as director of the Consumer Financial Protection Bureau (CFPB).
Cordray told his staff in an email obtained by Dodd Frank Update Wednesday that he would leave office at the end of November.
“I wanted to share with each of you directly what I have told the senior leadership in the past few days, which is that I expect to step down from my position here before the end of the month,” Cordray wrote. “As I have said many times, but feel just as much today as I ever have, it has been a joy of my life to have the opportunity to serve our country as the first director of the Consumer Bureau by working alongside all of you here.”
Dodd Frank Update subscribers: Take a look back at the CFPB under Richard Cordray with 15 of the most important stories from his tenure.
The Dodd-Frank Act provides for a short succession line at the head of the bureau – only the director and the deputy director, who becomes the acting director, are eligible in the statute to sign off on CFPB activities. If Deputy Director David Silberman took over the helm and Trump fired him before he appoints a new deputy director, the CFPB would be left leaderless, and thus unable to enter into activities – such as enforcement actions – that the director must sign off on.
Silberman joined the CFPB in 2010 after 12 years as general counsel and executive vice president of Kessler Financial Services, a privately held company focused on providing advisory services in developing and marketing financial service products through distribution partnerships. He served as deputy general counsel of the AFL-CIO, and began his career as a law clerk to Justice Thurgood Marshall and a member of the law firm Bredhoff & Kaiser.
Subscribers, access industry specific reaction
The Title Report subscribers will find links to reaction from ALTA CEO Michelle Korsmo at TheTitleReport.com
Dodd Frank Update subscribers can find reactions from trade associations such as the Consumer Bankers Association and legislators such as Rep. Jeb Hensarling and Sen. Elizabeth Warren at DoddFrankUpdate.com
The Legal Description subscribers can find reaction from RESPRO President and Executive Director Ken Trepeta and Rep. Maxine Waters at TheLegalDescription.com
RESPA News subscribers will find reaction from Mayer Brown Partner Phillip Schulman and Sterbcow Law Group Managing Partner Marx Sterbcow at RESPANews.com
Valuation Review subscribers can find initial reaction from the appraisal industry at ValuationReview.com
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The accomplishments of the CFPB since it opened its doors have been closely tied to Cordray and what publicly has been perceived as his vision for the agency. The bureau often has touted the amount of money it has returned to harmed consumers – nearly $12 billion – along with the success of its mortgage market reforms, which Cordray often refers to in public speeches as steadying the market it was expected to crash.
Yet the director and the agency have picked up as many critics as backers, with observers pointing to constraints in lending markets that have tightened credit, companies publicly shamed for what critics have deemed to be overly harsh penalties, methodology used to hold indirect auto lenders accountable for discriminatory lending practices, and new rulemaking in areas such as payday loans, arbitration and debt collection that critics say far exceed mandates from Congress in creating the bureau.
The bridge too far, of all things, might have been the CFPB’s interpretation of RESPA. The congressional statute that originally was enacted in 1974 had fallen under the oversight of the Department of Housing and Urban Development (HUD) until it was passed to the bureau by the Dodd-Frank Act.
Cordray’s controversial reversal of prior HUD interpretation of the statute in the complaint against PHH Corp. led to the appeal of his administrative decision to the D.C. Circuit Court. And the three-judge panel’s ruling in that case led to the agency being called unconstitutionally structured.
Citing Cordray as the “president of consumer protection” with more authority than any government official outside of the president himself, the D.C. court’s ruling severed the provision in the Dodd-Frank Act that made Cordray removable only “for-cause” – a difficult legal standard for the president to reach.
The CFPB appealed that ruling, and although the full D.C. court has not yet issued its ruling, observers from the hearing believed the focus in questions about the constitutionality of the bureau would lead the full court to consider severing the “for-cause” provision, as the original appellate court did.
The results of the presidential and congressional elections in November put a freeze on many of the activities of the CFPB in 2017. The bureau has handed out 17 enforcement actions since the start of the year, but more than ever, the CFPB filed suit against companies rather than reaching consent orders, as industry participants appeared emboldened both by the success of PHH Corp. in its case and by the Accrediting Council for Independent Colleges and Schools, which won a dismissal of compliance with a civil investigative demand issued by the bureau.
Rulemaking, meanwhile, was frozen. An executive order from the president required a review of rules to cut two for every one issued, and to provide more extensive reviews of rulemaking with high economic impact. Congress used the Congressional Review Act (CRA) at the beginning of the year to rescind 13 federal regulations, although the CFPB’s prepaid card rules – which had legislation introduced for repeal – was not eventually among that group.
There were minor proposed tweaks to Equal Credit Opportunity Act and Home Mortgage Disclosure Act (HMDA) rules, and the bureau launched a request for information on small business lending data collection – after House Financial Services Chairman Jeb Hensarling (R-Texas) called Cordray out at a hearing for refusing to move on that statutory rulemaking, despite moving forward on discretionary rules such as payday lending.
But it wasn’t until July that the CFPB moved forward on rules, finalizing the TRID amendments that had been proposed a year earlier then finalizing pre-dispute arbitration rulemaking three days later. Four days later came proposed HMDA relief for small lenders, and at the beginning of August, the bureau unveiled model prototype forms for overdraft disclosures.
The arbitration rulemaking was met with swift condemnation from the industry and lawmakers, and the House quickly voted to disapprove the rule through CRA.
“On July 25, my colleagues in the House and I took another step to rein in one of the least accountable government agencies by overturning the CFPB’s arbitration rule,” Rep. French Hill (R-Ark.) told The Title Report. “The arbitration rule is a windfall for the politically well-connected trial lawyer lobby at the expense of consumers because class action lawsuits are all too often more about cash for trial lawyers than protection for consumers.”
The real estate and banking industries have had at times an uneasy relationship with Cordray and the CFPB. Although leaders throughout the industry have applauded the agency’s efforts to clean up bad practices within its ranks, Cordray’s sometimes abrupt public statements and enforcement actions have ruffled feathers.
The CFPB’s apparent practice of creating new rulemaking standards through enforcement actions drew criticism throughout the industry. Yet when Cordray finally acknowledged the practice took place, he did not apologize or shrink away from urging its continuance.
“Some have criticized this approach as regulation by enforcement, but I think that criticism is badly misplaced,” he told the Consumer Bankers Association (CBA) audience in March 2016. “Certainly any responsible official or agency charged with enforcing the law is bound to recognize that they should develop a thoughtful strategy for how to deploy their limited resources most efficiently to protect the public. That means working toward a pattern of actions that conveys an intelligible direction to the marketplace, so as to create deterrence that can be readily understood and implemented. The alternative is just a random series of actions that takes a few wild swipes at the bad actors without systematically cleaning up the practices that harm consumers across the marketplace.”
Going further, Cordray said it would be compliance malpractice to avoid the lessons laid out in enforcement actions.
“These orders provide detailed guidance for compliance officers across the marketplace about how they should regard similar practices at their own institutions,” Cordray told the CBA crowd. “If the same problems exist in their day-to-day operations, they should look closely at their processes and clean up whatever is not being handled appropriately. Indeed, it would be ‘compliance malpractice’ for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly.”
Among the initial critics of Cordray’s steps was then-Texas Rep. Randy Neugebauer, who met with President Trump a week before the inauguration to discuss potentially running the CFPB.
“Instead of promulgating rules or guidance and allowing public feedback, the CFPB continues to operate unchecked in its quest to dramatically alter the consumer marketplace,” a spokesman for Neugebauer told Dodd Frank Update at the time. “Businesses deserve certainty and clear rules of the road, yet the bureau continues to fall short.”
Cordray was nominated to become the first director of the bureau six days after its opening, although he did not officially become director until a recess appointment Jan. 4, 2012, and he was later confirmed by the Senate on July 16, 2013. Approaching the five-year anniversary of the CFPB in July 2016, Cordray said in an interview with CNBC that the first five years of the bureau had been a learning process.
“I think we’ve learned constantly along the way over the last five years,” he said in the interview. “But if you put together what we’ve done over time, we have stood on the side of consumers to make sure they’re treated fairly in the financial marketplace, we’ve gotten back $11.5 billion to consumers in enforcement actions and other work during that time, we’ve reformed the mortgage market, which blew up the economy back before the financial crisis, so that it’s a safer and better marketplace, and we’ve responded to almost (1.25) million consumer complaints.”
Cordray said the agency continued to expect more from itself, and the participants which it oversees.
“So yes, we are pushing you – hard – to become more consumer-focused and consumer-friendly institutions,” he said, addressing the CBA audience. “And when you push back, we welcome your input. We welcome it because we realize that your input can make us a better and more effective agency. Indeed, that is exactly what everyone should want us to be, in order to improve the financial marketplace for all responsible businesses as well as for consumers.”