In the new book released Monday by Richard Cordray on his time as director of the Consumer Financial Protection Bureau, Cordray’s writing sounds much like his speeches and presentations during his time in office – thought out, straight forward, detailed and mostly bland.
So it comes as no surprise that nearly 200 pages into “Watchdog: How protecting consumers can save our families, our economy, and our democracy” the biggest revelation is mentioned with little buildup.
On Nov. 1, 2017, the day President Donald Trump signed a Congressional Review Act bill which would rescind the bureau’s arbitration rule, the first director of the CFPB received a call which was to tell him that the president fired him.
“At a private signing ceremony, flanked only by Republican lawmakers and industry lobbyists, President Trump signed the resolution as expected. That result not only invalidated the rule but also would prevent the bureau from adopting any new rule on the same subject without new congressional authorization,” Cordray recalled in the book. “The president also took the occasion to survey the room about whether he should reconsider his reluctance to fire me.
“As they debated the issue, our consumer advisory board was meeting in Tampa. I received an unscheduled call from the White House, and a secretary asked me to hold to speak with the president, but then the call was abruptly terminated. Chief of Staff John Kelly apparently intervened at that point, and I never heard anything further. I knew why the White House had called, but once again I had dodged the bullet.”
Two weeks to the day later, Cordray announced he would be resigning. Twenty-three days after the arbitration rule was rescinded, Cordray left the CFPB and Washington.
“A few days later,” Cordray wrote of the time after the arbitration bill was signed “I received a very different call, this time from former congressman Barney Frank. He said he understood how disappointed we must be, but that we had raised the visibility of the arbitration issue in important ways that would pay dividends down the road.”
And that is the heart of “Watchdog,” in which Cordray recalls good times and bad, but rarely pauses to dwell long on either before moving to the next thing. Even when he is given the chance to tangle with thorny issues at the end of his time in office, such as the succession plan he put into place for Leandra English – which, ultimately, was usurped by the “squatters’ rights” which Mick Mulvaney claimed.
“I had elevated my chief of staff, Leandra English, to the deputy director position. The administration objected to my attempt to select my own interim successor, even though it was in accordance with the wording of the statute,” Cordray wrote. “Leandra’s experience at the top levels of the bureau, combined with her prior career in several other federal departments, gave her excellent management credentials that would help keep things steady while awaiting a new permanent director. And if a fight did occur, I knew that she would be able to shoulder the burden of becoming the focal point of the dispute and that she would put the bureau and its employees first, avoiding disruption to any of the substantive areas of work.”
The saga of who would lead the CFPB after Cordray’s departure would play out publicly and in courtrooms over the next nine months. But Cordray sums up that struggle in the following paragraph, which ends with “a lawsuit was filed to challenge his appointment, but the judge refused to intercede.”
The most significant challenge to the CFPB’s authority in Cordray’s tenure was the case involving PHH Corp. – the dispute which first brought the constitutionality of the bureau into question, an issue being debated in front of the Supreme Court this week.
Cordray spent a little more than one page addressing the background and history of the case before writing one graph on his decision in the administrative appeal, in which he defended his decision as “the proper legal analysis.”
“An able administrative law judge that we borrowed from elsewhere in the federal government held a trial and found PHH liable for violating the law. After evaluating the effects of the violations, however, he assessed damages at only $6.4 million,” Cordray recalled. “In this posture, the case was then appealed to me as the agency head. Under the statute, I conclude that PHH’s acceptance of lucrative market share in the mortgage reinsurance market in return for making referrals of mortgage insurance business was a “thing of value” and thus violated the law.
“I also had to determine the amount of damages. Depending on how one read the statute in terms of which contract payments were encompassed by PHH’s violations, the figure came to either $6.4 million or $109 million. In a 38-page opinion, I explained my legal reasoning for adopting the higher figure, which set off a firestorm. This decision would lead to significant risks for the bureau, though those risks were not germane to determining the proper legal analysis.”
Cordray wrapped up the ensuing court actions – which would last more than two years and result in the en banc court of the D.C. Circuit Court of Appeals upholding the agency’s constitutionality – in less than a page. The heaviest focus came on Judge Brett Kavanaugh’s decision in the original three-judge panel.
“To find the structure unconstitutional, he distinguished away contrary Supreme Court precedents, adopting instead academic theories of the ‘unitary executive,’ which judicial conservatives favor to tame independent agencies and hobble the post-New Deal administrative state,” Cordray wrote in the closest thing he comes in the book to throwing shade. “The heart of the ruling blunted our independence by holding that the president could replace the director at any time, for any reason.”
Cordray talked more in-depth about the RESPA issues involved with the PHH case in a pair of footnotes – there are 33 pages of footnotes in the 228-page book.
He began by saying federal and state officials had found RESPA difficult to enforce since it was passed in 1974.
“Some of the alleged kickback agreements simply rearrange market share, and it is often unclear whether they raise prices or otherwise hurt consumers,” he wrote. “A strong reading of the law is that it was intended to prevent any of these kinds of market distortions, but an alternative reading would be that companies like PHH can only be held liable if they are proved to have charged above-market prices for the services they provide.”
In another footnote discussing the legal arguments over constitutionality, Cordray wrote that the court “barely touched on” the legal point which caused him to inflate the monetary penalty.
“Yet the court did reject our judgment that lucrative market share is a ‘thing of value,’ holding that PHH could not be held liable under RESPA unless it was proved to have charge above-market prices for the reinsurance services provided by its subsidiary,” he wrote.
Another of the footnotes regarded Cordray’s distaste for the TRID acronym, which he equated to critics of the new mortgage disclosures.
“The opponents of the new rule were not subtle,” he wrote. “Although we preferred to refer to it as the ‘Know Before You Owe’ rule, its formal name was the ‘TILA-RESPA Integrated Disclosure’ rule. Some stakeholders shortened that to ‘TRID’ and gleefully pointed out that it was ‘dirt’ spelled backward. For our part, we recognized the extensive investments that the industry was having to make to alter their application process, tolerance rules, disclosure presentations, closing process and more.”
In a short section on TRID, Cordray briefly discussed the hectic months before the October 2015 implementation of the rule.
“As the effective date approached, some companies sought to blame us for what they portrayed as a coming train wreck that could disrupt real estate markets,” he wrote. “We were quite resistant to giving any relief from the deadline set almost two years before. On the eve of the effective date, however, we found that we had made an embarrassing paperwork error in filing the rule with Congress – ironic for a rule that was all about paperwork – which meant we had to delay the deadline briefly after all. All sides were relieved when we pushed it past the beginning of the school year, a busy period in the real estate industry, producing an unexpectedly beneficial result.”
He wrote that loan closings dropped off significantly after the implementation but recovered within six months. He did not mention any of the technology issues which caused him to put technology vendors on warning at the Mortgage Bankers Association annual convention that year.
Cordray discussed the Wells Fargo enforcement action in 2016, calling it “a seminal moment for consumer financial protection.”
“The damage to the bank’s reputation was unprecedented, and it was forced to embark on a long-term campaign to pursue public rehabilitation,” he wrote.
He also noted that the CFPB, in looking into whether other institutions had similar policies or problems with account fraud that Wells Fargo did, found just that.
“What we found over the next year, notably, was that a few banks had some problems, but not on the scale of Wells Fargo’s abuses. We wrapped up most of those situations through supervisory actions, though some investigations took more time to proceed,” he wrote.
At the time, there were a handful of published reports that other banks had been found with similar issues in investigations by the Office of the Comptroller of the Currency. But no such investigations by the bureau were reported.
Cordray also wrote about some of his best times, discussing the early days of the CFPB with more passion than he had anywhere else in the book.
“The work was exciting and deeply absorbing. But the truth was that we did not see it was work. We were doing something that we believed would have great meaning for the future of the country. We matched that zeal with the brash vigor of a startup organization, with its seemingly endless stream of possibilities,” he wrote.
He wrote about some of his worst times as well, primarily coming in the beginning of 2017 when President Trump took office and appeared to be set to fire Cordray.
He first detailed conversations with the transition team, which at first did not contact the CFPB at all, and when the bureau did finally connect with the team, it learned the individual assigned to the bureau had no background in consumer finance.
“The sessions we had with her were strangely filled with irrelevant asides and odd comments,” he wrote.
Preparations for challenging a firing from Trump were in motion before he took office. Because the lawsuit would be personal to Cordray, he could not be represented by the CFPB legal team, and conflict-of-interest rules made it so lawyers who did business with the bureau could not represent him.
In the end, an old friend who clerked with Cordray on the Supreme Court, Harry Litman, agreed to represent him without charge. As the pair began working on defenses for potential claims in a firing, fitness for office became a clear possible tactic.
“Recognizing that a court might defer to President Trump’s judgment on my fitness for office, we also requested and secured a letter from President Obama, while he was still in office, attesting to my fitness and praising our good work for consumers,” Cordray wrote.
Cordray called the atmosphere “tense” the first three weeks of the new administration, until he had a dinner meeting with National Economic Council chief Gary Cohn.
“He told me that he had been given the task of deciding what to do about my situation,” Cordray wrote. “He was interested in knowing whether I expected to serve my full term. I told him that I was not sure, but for as long as I did stay, we would continue to do what we thought was best to protect consumers and would keep him informed about significant actions. He acknowledged that, and by the end of dinner, we negotiated a temporary truce to await further legal and political events.”
In the end Cordray did also have some words about his successor, Kathy Kraninger.
“Her arrival calmed the waters after Mulvaney’s erratic tenure, though it remains to be seen whether she will make good on her public pledge to wield all available tools effectively to protect consumers,” he wrote. “Most of the work the bureau does to educate and engage with consumers continues to be widely supported. But leadership matters, and while much of the core work of the bureau is ongoing, both enforcement actions and regulatory work have backtracked in ways that leave people more vulnerable.”
SPECIAL NOTE
Be sure to check out our sister publication, RESPA News, later this week for an exclusive 1-on-1 interview with Cordray, in which he discusses his new book, the CFPB’s work on TRID, the landmark PHH Corp. case, and the impact of the phone call which nearly had him fired. Visit RESPANews.com later this week for all the details.