What Cordray and the Consumer Financial Protection Bureau Mean to You

During the holiday break, President Barack Obama made a recess appointment to head the new consumer agency created by the Dodd-Frank Bill. Richard Cordray is mild-mannered Ohioan, a five-time Jeopardy! champion and a former attorney general who is admired by Republicans and Democrats alike. So why has there been such a fuss?

The problem has a lot less to do with �who� than it does �how� and �why.�

Dodd-Frank accomplished many things, one of which was creating the Consumer Financial Protection Bureau. From its own website:

�The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans � whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.�

Now, this mission sounds fairly benign, bipartisan and helpful, no? Who doesn�t want markets to work for Americans? That is, indeed, the central idea of capitalism in this country.

Well, Republicans have been doing everything they possibly can to prevent this new agency from getting off the ground and fulfilling its duties. Most notably, the Senate has refused to consider confirming a director to the bureau. The GOP generally is not happy about any new regulatory body, but its specific complaint in this case is largely twofold: The CFPB has only one director (not three, like many government agencies), and it is not accountable to Congress for its budget because it is housed within the Federal Reserve and receives monies from that agency.

So, during the Christmas break, while the Senate was on holiday break, President Obama appointed Richard Cordray to head the agency. While the Constitution gives the president the power to appoint people without the confirmation of the Senate if it is �in recess,” Republican Senators were outraged, as they believe the Senate was not technically in recess.

Years ago, members of both parties began �convening� the Senate for a few seconds every couple of days with just one or two members present to prevent the president from making recess appointments. This is a particularly political move — of which both parties are guilty — that is meant to deprive the executive branch of one of its responsibilities.

Cordray himself seems to be of little importance in the argument. Cordray is a former Ohio attorney general who has a deep background in law and economics and has been well-regarded across the political spectrum.

Cordray was the first attorney general to sue a mortgage lender for the robo-signing scandal and led a class-action lawsuit against Bank of America. He is a hero of many consumer advocacy groups and seemed to be a safe choice for Obama after his first pick, Elizabeth Warren, was not able to overcome GOP opposition.

But the GOP is outraged that Obama did not allow the Senate to flex its obstinate muscles and continue to block the work of the CFPB. Whether Republicans have reason to be mad is politically immaterial. What does matter is that the possibility of Cordrays�s nomination being illegal (since the Senate was technically not in recess) opens the door for a lot of lawsuits down the road, and thus more uncertainty and costs.

Still, the legal conundrum the Obama administration might find itself in is too theoretical at this point to analyze. For now, he made the right choice to force the work of the CFPB.

Pros and Cons

While the CFPB has been operating since July 2011, it has been able to oversee only traditional banks. When Cordray took over as director, its authority was extended to non-banks as well. This means firms that provide financial services or products — such as payday lenders, mortgage servicers and private student loan operators — now will be regulated and monitored in some of the same ways that banks have traditionally been.

Since the bureau still is in its infancy, it is impossible to know how effectively it will protect consumers. But let�s examine a few of the possible benefits and pitfalls.