Trump Team Chafes at Banking Regulator Who Can't Be Fired

Richard Cordray, the first director of the Consumer Financial Protection Board, has taken an aggressive tack. Now, it may be doing its job too well.

He's one of the few U.S. government officials that President Donald Trump can't fire on a whim.

And that independence might help explain why Richard Cordray, 58, director of the Consumer Financial Protection Bureau, or CFPB, has been so aggressive -- and successful -- in cracking down on illegal debt-collection practices, improper mortgage-foreclosure tactics and deceptive credit-card marketing by banks like Citigroup Inc. (C) - Get Citigroup Inc. Report

Unlike the heads of the Federal Reserve and the Securities and Exchange Commission, Cordray doesn't answer to a board or commission. And unlike former FBI Director James Comey, Cordray can't be replaced without cause prior to his term's expiration in 2018. Nor does Congress have the ability to slash the CFPB's budget, as industry-friendly lawmakers have done in the past to blunt the enforcement efforts of the SEC and Commodity Futures Trading Commission.

In the six years since its creation, the bureau has wrested more than $12 billion of consumer relief and penalties from banks and other financial firms. Cordray's disclosure of improper account openings at Wells Fargo & Co. (WFC) - Get Wells Fargo & Company Report  ultimately led to the departure of the San Francisco-based bank's CEO, John Stumpf.

But rather than applaud the CFPB for its successes, Trump and the banking industry want to rein Cordray in. The Treasury Department said in a report this month that the agency was prone to "regulatory abuses and excesses." And the Republican-controlled U.S. House of Representatives on June 8 passed a bill that would give the president the ability to fire the CFPB director and subject the agency to Congressional budget appropriations.

"What's going on is more an objection to the way the CFPB is carrying out its mission than a principled position about what agency structure is ideal," said Brian Marshall, policy counsel at Americans for Financial Reform, which advocates for tougher regulation.

According to the Treasury report, the bureau got $565 million in transfers from the Fed in 2016. That figure, from a regulator that didn't previously exist, is roughly on par with the SEC's entire enforcement budget.

The CFPB was set up in 2011, the brainchild of Sen. Elizabeth Warren, a Massachusetts Democrat and longtime big-bank critic. Under Cordray, a former Ohio attorney general and five-time Jeopardy! champion, the agency has passed rules specifying the boundaries of safe mortgage lending while expanding the definition of which financial-product sales might be considered unfair or deceptive.

Indeed, says Marshall, banks may have avoided making many risky loans due to the CFPB's oversight, thus forgoing profit opportunities worth "multiples" of the $12 billion of penalties imposed.   

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In other words, the question is whether the CFPB's governance structure makes it more effective as a regulator, not less.

"While opportunity costs represent a cost to the bank, such lost profits do not necessarily reflect a loss to society," the CFPB wrote in a 2013 report. "For example, it may be true that consumer benefits from avoiding those transactions are equal or greater than the loss in bank profits."

Risk-avoidance could also spare the banks -- and their shareholders -- the often-delayed costs of consumer lawsuits and fines. The Wall Street Journal reported in March 2016 that big banks had paid at least $110 billion in fines for their role in the mortgage crisis of the late 2000s. And those figures don't include multibillion-dollar settlements reached subsequently with Germany's Deutsche Bank and other firms.

The CFPB's press office didn't respond to requests for comment. 

On Thursday, June 22, the American Bankers Association and other financial-industry trade groups sent a public letter to lawmakers arguing that the CFPB should be overseen by a five-person, bipartisan commission. Such an arrangement would provide a "balanced and deliberative approach to supervision" while reducing "uncertainty and instability for consumers."

In other words, the banking industry -- with its armies of lawyers, consultants and lobbyists -- would have an easier time pushing back against an aggressive regulator. The five-person structure would also insulate the agency from "dramatic political shifts" each time a new president comes along, according to the letter.

The American Bankers Association represents big U.S. lenders including Wells Fargo and Citigroup as well as JPMorgan Chase & Co. (JPM) - Get JPMorgan Chase & Co. (JPM) Report  and Bank of America Corp. (BAC) - Get Bank of America Corp Report

Dick Bove, a five-decade veteran analyst at Rafferty Capital Markets in Lutz, Fla., says banks faced virtually no enforcement of consumer-protection laws prior to the CFPB's creation. The Federal Reserve, Office of the Comptroller of the Currency and other regulators focused instead on firms' ability to weather big losses and pay back depositors.

"The fear among bankers is that there's this guy out there, and he can do whatever he wants, and nobody can stop him," Bove said in an interview. "I would be afraid too if I were a bank."