Cordray Named Director of New U.S. Consumer Bureau

January 04, 2012, 4:31 PM EST By Hans Nichols and Laura Litvan

(Updates with Cordray remarks in second paragraph, White House officials, Senate Democrats beginning in 12th.)

Jan. 4 (Bloomberg) -- President Barack Obama installed Richard Cordray as head of the Consumer Financial Protection Bureau with a recess appointment today, testing the limits of his executive authority to fill the post without Senate approval.

“I am now the director and my work will be to protect American consumers,” Cordray said at the airport in Cleveland, where he was accompanying the president to a speech on the economy. “I’m going to be 100 percent focused on that.”

Obama nominated Cordray to be the bureau’s first director in July, almost one year after enactment of the Dodd-Frank financial regulatory law creating the agency. Republicans blocked Cordray’s confirmation by the Senate last month. Putting him in the job today may set up an election-year court fight between the White House and Congress.

The president’s decision drew quick criticism from Senate Republican leader Mitch McConnell, who said in a statement that Obama “arrogantly circumvented” the American people and upended “long-standing” practices that limited recess appointments.

“Breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch,” said McConnell, of Kentucky.

House Speaker John Boehner, an Ohio Republican, called the appointment an “extraordinary and entirely unprecedented power grab” by the president.

Ohio Announcement

Obama, who is making confrontation with congressional Republicans a part of his re-election strategy, has said filling the consumer bureau post is critical to protecting middle-income Americans from “unscrupulous” lenders. He plans to make the announcement this afternoon in Ohio, a key battleground for the 2012 presidential election.

Cordray is the former attorney general of Ohio and accompanied Obama on Air Force One for the trip to the state.

The Constitution gives a president the power to make appointments when the U.S. Senate is in recess. To keep Obama from appointing officials after Congress started a holiday break last month, congressional Republicans refused to adopt a resolution to formally adjourn and senators have appeared every three days for a brief pro forma session.

Senate Recess

The Congressional Research Service, in a 2001 memo, said congressional practice and Justice Department opinions have backed the position that the Senate should be out of session for more than three days before the president can make a recess appointment.

Pfeiffer, in a post on the White House website, accused Senate Republicans of making an “overt attempt” to block the president from using his constitutional authority to make recess appointments by insisting the chamber remain in pro forma session.

“Gimmicks do not override the president’s constitutional authority to make appointments to keep the government running,” Pfeiffer wrote. Lawyers who advised President George W. Bush on recess appointments wrote that the Senate “cannot use sham ‘pro forma’ sessions to prevent the president from exercising a constitutional power,” he wrote.

Obama’s press secretary, Jay Carney, cited a legal opinion by the White House counsel’s office that determined the Senate was in recess and not conducting any business.

Legal Justification

“When the Congress refuses to act, the president will,” Carney told reporters traveling with the president. “The fact of the matter is that the Senate has been in recess and will continue to be in recess.”

In making the appointment, Obama is going beyond the power asserted by previous administrations to install officials without Senate action. In a 1993 court case involving the Postal Service Board of Governors, Justice Department lawyers argued in court papers that presidents can make recess appointments when the Senate is out of session for more than three days.

The brief suggested that a president might lack that authority during shorter breaks. Pointing to the constitutional requirement that the Senate and House get one another’s consent before adjourning for more than three days, the Justice Department said the constitutional framers might not have considered shorter recesses to be significant.

“If the recess here were of three days or less, a closer question would be presented,” the Justice Department argued.

Support from Democrats

Obama was backed by congressional Democrats, including Senate Majority Leader Harry Reid of Nevada and Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat.

Reid said in a statement that filling the job will give middle-income families “the advocate they deserve to fight on their behalf against the reckless practices that denied so many their economic security.”

In choosing Cordray last July, Obama passed over Elizabeth Warren, the Harvard University professor who set up the bureau and is running for the U.S. Senate from Massachusetts.

Even before Cordray received the nod, the bureau became ensnared in a partisan fight over demands by Senate Republicans for changes in the agency’s structure and funding. In May, 44 Republicans -- a 45th later joined them -- said they wouldn’t confirm a director without the changes, and on Dec. 8 they blocked the nomination on a procedural vote.

Consumer Bureau

Without a director in place, the consumer bureau can’t supervise and regulate non-bank financial firms, such as mortgage originators and payday lenders. On July 21, it acquired the authority to supervise and regulate deposit-taking banks.

The appointment heightens a clash between Obama and Congress, including December’s showdown over a two-month extension of a payroll tax cut for workers. Obama will need Congress to pass a full-year extension, which is “essentially the last must-do item of business on the president’s congressional agenda” in 2012, White House spokesman Josh Earnest said on Dec. 31.

The president also may need Congress’s cooperation on pending nominations to the Federal Reserve Board and judgeships and on his proposals in a jobs bill.

The Senate is scheduled to stay symbolically open for business until lawmakers resume work on Jan. 23.

--With assistance from Roger Runningen in Cleveland, Kate Andersen Brower, Greg Stohr and Carter Dougherty in Washington. Editors: Joe Sobczyk, Laurie Asseo

To contact the reporters on this story: Hans Nichols in Washington at hnichols2@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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House Panel Approves Consumer Bureau Changes

May 13, 2011, 4:32 PM EDT By Phil Mattingly

May 13 (Bloomberg) -- Republicans on the House Financial Services Committee advanced three bills today to reshape the Consumer Financial Protection Bureau, turning the tables on Democrats who approved the agency in party-line votes last year.

Lawmakers led by Representative Spencer Bachus, the Alabama Republican who leads the panel, are pushing changes to the Dodd- Frank Act, the regulatory overhaul they’ve targeted since taking control of the House in January. The Republicans have proposed about a dozen bills to revise the new rules, which they were nearly unanimous in opposing when Dodd-Frank was passed in July.

The three bills approved today are “important pieces of legislation, all of which will promote greater certainty for our economy and job creators,” Bachus said yesterday.

After more than 10 hours of debate yesterday over the CFPB measures and a bill to re-authorize the National Flood Insurance Program, Bachus put off until May 24 consideration of an 18- month delay of derivatives rules mandated by Dodd-Frank. The bill would push implementation of rules for the $583 trillion over-the-counter swaps market -- many of them due by July -- to December 2012.

The Republican measures, even if they are approved by the full House, are likely to face opposition from the Senate, which remains in Democratic hands, and from President Barack Obama, who initiated the regulatory overhaul in response to the worst financial crisis since the Great Depression.

Republican Questions

The CFPB, which Obama proposed after financial firms were accused of predatory practices in mortgage and credit-card lending, has faced questions from Bachus and his colleagues over its funding and potential reach. The Republican bills would clamp down on the bureau by replacing its as-yet-unnamed director with a bipartisan, five-member board, delaying its scheduled July 21 start date and making it easier for bank regulators to veto bureau rulemakings.

The proposals have been criticized by consumer groups as a way for Republicans to gut the bureau and undermine Elizabeth Warren, the Harvard University law professor serving as an Obama adviser to shape the agency she’s credited with conceiving.

“This legislation completely disregards and denies the causes of the regulatory failures that led to the current financial crisis,” a group of consumer groups and labor unions, including the AFL-CIO and the National Community Reinvestment Coalition, said in a May 3 letter to committee members.

Necessary Checks

Representative Shelley Moore Capito, a West Virginia Republican, said the bills are necessary checks on the power of bureau that will play a large role in financial markets.

“Whether we like it or not, the bureau will likely be the financial product regulator for the foreseeable future,” said Capito, who leads the financial institutions subcommittee.

Representative Barney Frank of Massachusetts and the committee’s Democrats have attacked the bills as delay tactics aimed at weakening consumer protection. The Democrats offered several amendments to change the measures, including one that would require that the president appoint Warren as the chairman should a commission be installed.

“Make no mistake, by expanding the ability for banking regulators to veto the CFPB, I believe that my Republican colleagues are far less concerned about the stability of the banking system, and far more concerned about hurting bank profitability,” Representative Maxine Waters, a California Democrat, said.

--Editors: Gregory Mott, Lawrence Roberts

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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Banks Push Consumer Bureau to Keep U.S. Complaint Line Private

May 13, 2011, 6:22 AM EDT By Carter Dougherty

May 13 (Bloomberg) -- The new U.S. consumer agency, which has yet to begin formal operations or write a rule, is already being squeezed between banks and advocacy groups over how to set up a complaint hotline.

Under the Dodd-Frank regulatory overhaul, the Consumer Financial Protection Bureau must establish a way for banking customers to submit reports about their problems with products and services. At issue is what happens after they’re filed.

Nonprofit groups such as Consumers Union and the Sunlight Foundation are pushing for an open system that would allow anyone to scan the raw submissions. Industry groups including the American Bankers Association argue that making them public could allow frivolous complaints to damage reputable brands.

“The point of banking supervision is to get the system working properly, not to air dirty laundry and scare capital away from banks,” Richard Riese, senior vice president at the bankers association’s Center for Regulatory Compliance, said in an interview.

The hotline has become a focal point of a philosophical debate about the bureau’s role -- whether it should aim to improve consumer financial products primarily by working directly with companies or by bringing public attention to unfair practices.

Bureau officials plan to open the hotline by accepting consumer complaints about credit cards starting on July 21, according to a person involved in the work.

‘Timely Response’

Dodd-Frank requires the bureau to log complaints in a database and route them to the appropriate federal or state agency. A separate provision says the bureau and other regulators must create procedures to ensure that financial firms provide “a timely response” to consumers.

The agency is working with five of the largest credit-card issuers -- JPMorgan Chase & Co., American Express Co., Discover Financial Services, Capital One Financial Corp. and Bank of America Corp. -- to make certain they can begin receiving complaint referrals in July, said the person, who spoke on condition of anonymity because the process isn’t public.

Credit-card complaints will be accepted first because they deal with the most common form of consumer finance, the person said. The complaints could also inform the bureau’s enforcement actions, and its supervision of banks and non-bank lenders, another person involved in the process said.

While the bureau has not decided what information related to consumer complaints will be public, previous comments by Elizabeth Warren, the White House and Treasury adviser who is setting up the agency, suggest a preference for wide distribution.

Crowd-Sourcing

Warren has said that a public database would allow consumers to look for patterns -- a process known as “crowd- sourcing” -- and make their decisions accordingly.

“Through crowd-sourcing technology, consumers can deal collectively with those who would take advantage of them -- and can reward those who provide excellent products and services,” Warren said in a speech on Oct. 28.

The debate over the hotline echoes one involving the U.S. Consumer Product Safety Commission. In November that agency approved the creation of a public consumer complaint database over objections from business groups. The web-based system, which also accepts complaints via phone, fax or letter, went live on March 11.

Banking lobbyists are asking the consumer financial bureau to limit the information in the database to other banking regulators and the consumer who made the complaint, according to a Feb. 8 letter from the ABA and four other finance groups.

‘Suitable Notice’

“Any expansion of the use of or access to the database should be determined through a formal rulemaking process that involves a suitable notice and comment period,” the ABA said in the letter, which was also signed by The Clearing House, the Consumer Bankers Association, the Financial Services Roundtable and the Housing Policy Council.

Consumers Union, which publishes Consumer Reports magazine, wrote the bureau in a Sept. 3 memo that the new agency should make public “all complaints from receipt” and not a subset that has been vetted by the bureau.

“Consumers can benefit from learning that a financial services provider is doing something that makes its customers unhappy even if that activity is not illegal,” Consumers Union and 15 other groups wrote.

A contact person for the letter was Gail Hillebrand, a former senior attorney with Consumers Union. She has since been hired as the consumer bureau’s associate director of consumer education and engagement.

Open Government

The creation of the complaint system is being overseen by Catherine West, the chief operating officer at the consumer bureau. West is a former COO at J.C. Penney Co. Inc. and former senior executive at Capital One, one of the banks cooperating with the system test.

Warren addressed the consumer complaint system at an April 6 meeting with groups that campaign for more open government, according to a blog post on the agency’s website. The groups urged Warren to make the complaints public despite bank objections, said Angela Canterbury, director of public policy at the Project on Government Oversight, a watchdog group.

“These concerns about consumer complaints on the part of industry reflect an old-fashioned sensibility,” Tom Lee, director of Sunlight Labs at the Sunlight Foundation, said in an interview.

Lee, who attended the meeting, pointed out that Amazon.com Inc. publishes unedited consumer complaints about products on its website “and global capitalism has not ground to a halt.”

Simulated Complaints

The consumer bureau plans to accept complaints through a form on its website, by e-mail, by telephone or by letter. To test the system, officials have been passing along simulated complaints to the credit-card issuers.

“We want to be a part of any opportunity that helps us better understand the concerns of our customers,” Paul Hartwick, a spokesman for Chase Card Services, said in an e- mail. “We believe we can help the CFPB develop a robust process for capturing, cataloguing and analyzing complaints, questions and inquiries that come from American consumers and their families.”

Leslie Sutton, a spokeswoman for Discover, and Leah Gerstner, a spokeswoman for American Express, said they welcomed the chance to work with the consumer bureau. Spokesmen for Bank of America and Capital One did not respond to requests for comment.

NHTSA Database

The history of another government complaint database, at the National Highway Transportation Safety Administration, shows industry concerns may eventually recede. Since 1966, the agency has collected reports of possible safety defects in automobiles. The database is public and searchable by model year and make on the agency’s website.

“The only way you can persuade the agency to do an investigation and get a potential recall is if you show examples of the problem,” Joan Claybrook, a former director of the agency, said in an interview.

Wade Newton, a spokesman for the Alliance of Automobile Manufacturers, said the companies have few complaints about the system.

“We compete on consumer satisfaction,” Newton said in an interview. “The idea that we have a channel to get feedback from our customers is a good thing.”

--Editors: Lawrence Roberts, Maura Reynolds

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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