The Consumer Financial Protection Bureau was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and is charged with looking out for the best interests of American consumers. Last week, President Obama announced the recess appointment of Richard Cordray as CFPB's director, calling the former attorney general of Ohio "America's consumer watchdog." Cordray recently spoke with U.S. News about his plans for the new bureau, his concerns about overregulation, and how the agency could have prevented the last mortgage crisis. Excerpts:
What is the agency's most urgent role?
I would put it at twofold. Number one is we are going to continue the work we've already begun in our 'Know Before You Owe' program, to try to make prices and risks clearer to consumers so they can make better-informed choices and that will help the markets work better. The other thing that's really important, now that we have a director in place, is that we are able to police the non-bank arena as well as the banking arena. [Recess Showdown in Congress Over Richard Cordray?]
Why is that important?
What we saw is that in a lot of these financial markets for consumer services, such as mortgages, you have both banking entities and non-banking entities competing against one another. And a part of the market is supervised and required to comply with the law, and another part of it is completely unsupervised and not held to the same standards and principles. The bad practices drive out the good and that definitely happened in the mortgage market leading up to the financial crisis.
How is CFPB different from existing regulatory agencies?
Well, first of all, we've never had before any federal regulatory agency that was solely focused on protecting consumers. Agencies that previously had consumer compliance as one of the issues on their longer agenda—understandably, consumer issues got short shrift. And when they were looked at, they weren't necessarily looked at in terms of how they affected consumers, they were looked at more for what kind of risk they created for the bank.
How will you interact with the public?
We're going to be doing that aggressively. We are going to be actively getting out of Washington and getting around the country. We've already begun to do that. We have the 'Tell Your Story' function on our website, and we are encouraging people to come there and give us a window into how these consumer products and services are actually affecting their lives, what their frustrations are, what their struggles are, what kinds of things they think we should address, and that gives us a lot more input into determining how we should set our priorities. [See the latest political cartoons.]
What about consumers who don't use the Internet, like the elderly?
That's a problem I've been grappling with since my days as a county treasurer and when I was state attorney general, when we were working on issues involving scams and frauds affecting the elderly. Many elderly people are isolated from their families and isolated from things like the Internet, although that's changing gradually. But our Office of Older Americans is looking to build partnerships with community groups and public officials at the state and local level. We're going to provide guidance to them for how they can identify and sort out problems with their elderly population and we're going to be working with AARP and other groups.
Did financial institutions escape punishment for their part in the economic crisis?
Our job here at the bureau is to hold industry participants accountable for obeying the law and that will be true across the sectors. It will be true on an evenhanded basis. Our job is to make these markets work better going forward, to hold people accountable.
Do you have authority to prosecute?
We do not have criminal authority ourselves. We do have the authority to refer for prosecution matters that we identify as potentially criminal. And we would be working with the Department of Justice and the U.S. attorneys offices.
Is your staff big enough for the task at hand?
That's something we're going to have to continue to see. We're building the agency, we're in our early days. And we're trying to build sensibly and on an appropriate time frame. So it would take us another year or two to get to full strength.
What kind of budgetary oversight will the agency have?
We have considerable budgetary oversight. We have multiple audits that we are required to undergo and that are made available to Congress. We have required testimonies and reports to Congress. We also have a firm fixed cap on our budget, the money that we get from the Federal Reserve. It's a fairly low cap, relative to the budgets of the other banking agencies. If we desire to have any funds to do our work above that fixed cap, we are required to go to Congress and the appropriation process, which is not true of any other banking agency. [Read more about the Cordray Appointment.]
How would creating a board of directors affect the agency?
We have a director at present. I personally think that's a very accountable model. Members of Congress can speak to me and know exactly what we're doing and know that their concerns have been heard. If that model were ever to change, we would implement the law, whatever the law is.
Are you concerned with overregulation?
The last thing we would want to do, and what would discredit our work as a bureau, is to pile on a bunch of optional regulations that actually cost more to businesses than they bring benefit to consumers. We are looking at the rather significant forest of regulations that we've inherited from the other agencies to see where we can streamline those. And I do not take it as a given that just because someone else wrote a rule that we will agree that the value to consumers outweighs the burden on industry. But the other side of the coin that needs to be remembered is that the ineffective or distorted regulation of markets that occurred before the financial crisis helped cause the financial crisis.
Can you elaborate?
The fact that mortgage brokers were making loans that were ridiculous because they had no skin in the game and didn't have to care about ability to repay, and those mortgages were cycling through the economy and into securitizations and the like, and ended up sinking some of our largest, most sophisticated institutions in the quagmire, shows the high cost of not having the regulatory regime right. So, we do think that had this bureau been in place 10 years ago, looking carefully at the mortgage market—mortgage origination and servicing—things may well have been different.
Are you worried that the controversy surrounding your appointment will affect your job?
I'm not. What had affected our role before was that we were only able to exercise part of our authorities and it did not allow us to do our work the way the law intended. Now that we have a director, we are moving forward.