Richard Cordray's Recess Appointment Gives Consumer Agency Full Power

The new government agency tasked with looking after the best financial interests of ordinary consumers finally has a leader.

President Barack Obama defied Republican congressional opposition and used a recess appointment to install his nominee, former Ohio Attorney General Richard Cordray, as the top watchdog at the Consumer Financial Protection Bureau.

The move caps six months of combat over the direction of the bureau, but is just the latest chapter in the fight over the shape of Wall Street Reform and Consumer Protection Act, the controversial financial regulation law that Obama signed in 2010 that created the new agency.

With Cordray in place, the bureau, which already regulates consumer practices at banks with assets of more than $10 billion, can assume its full powers to make or enforce rules governing certain non-bank financial companies, including payday lenders, mortgage brokers and private student loan companies.

Consumer advocates applauded Obama's move. "For all the ire aimed at banks, there are many serious problems for consumers posed by non-bank financial companies," said Lauren Saunders, managing director of the National Consumer Law Center.

Cordray has said that expanding the bureau’s reach to non-bank financial institutions would be his first order of business. "I've got a big job to do," Cordray told Reuters.

A former five-time Jeopardy! champ, Cordray attracted notice as Ohio attorney general for aggressively pursuing some of the architects of the financial crisis, including credit rating agencies. He was also the first attorney general to sue a mortgage servicer over robo-signing.

Republicans quickly criticized the recess appointment. "The #CFPB position had not been filled for one reason: the agency it heads is bad #4jobs and bad for the economy," House Speaker John Boehner (R-Ohio) said on Twitter.

But consumer advocates say the decision is good for the most financially vulnerable Americans.

"We applaud the president for battling through the dysfunction of a Congress that finds itself in the grip of Wall Street," said Bart Naylor, a consumer advocate at Public Citizen.

Payday lenders, including some banks and credit unions, often make loans at 400 percent annual interest or more. The consumer agency cannot set interest rate caps, but it will have authority to go into payday shops and examine their records and practices, in the same way that regulators do now at banks.

It’s not clear what changes the agency could impose, but at a minimum better disclosure to customers about hidden fees and the dangers of compounding interest is expected.

The bureau will also oversee "larger participants" in other financial industries, including credit reporting agencies, which Saunders said make frequent and damaging mistakes. "They affect every aspect of people's financial lives and yet have received little scrutiny," she said. "It is a nightmare dealing with them."

The consumer agency is currently trying to decide how to define the larger participant mandate. Interestingly, the big banks, which have otherwise opposed the bureau at every step, have sided with consumer advocates who are seeking for as broad a definition --and as such, as many companies -- as possible.

"Comparable accountability across all providers of comparable financial products and services is a fundamental mission" of the new agency, the American Bankers Association said.

Senate Republicans, led by Sen. Richard Shelby (R-Ala.), had held up the Cordray nomination for six months. They promised to continue to block Cordray, who is currently serving as the agency's enforcement chief, until Dodd-Frank is amended to make the agency more accountable.

"No bureaucrat will have more power over the daily economic lives of Americans than this director," Shelby said from the floor of the Senate shortly before the a vote to move the nomination forward failed last month. Without more oversight, the agency's actions will lead to bank failures, he said.

The Republicans said they wanted more control over the agency's purse strings and a board of commissioners rather than a single director to oversee the agency -- moves that would weaken the bureau, consumer advocates said.

The Republican position matched that of Washington’s most prolific lobbying force, the U.S. Chamber of Commerce, which pushed a House bill that would replace the director with a five-member commission.

A total of 34 industry groups list the bill as a lobbying priority, according to a Center for Public Integrity analysis of federal records, representing 183 industry lobbyists. At least 86 once worked for the government.

The Chamber spent nearly $30 million in lobbying on financial regulation and a host of other issues in the first three quarters of 2011. It tasked 21 lobbyists to work bills that would restructure the agency. In addition to the chamber, the most active opponents of the bureau's current structure include the American Bankers Association, the Financial Services Roundtable, the Independent Community Bankers of America and the Consumer Bankers Association.

Consumer Financial Protection Bureau spokeswoman Jennifer Howard did not respond to a request for comment about the Cordray appointment.