CFPB's Cordray on Senate Confirmation, QM and Future Challenges

WASHINGTON — Consumer Financial Protection Bureau Director Richard Cordray has spent the past year and a half deflecting questions about the impact his controversial recess appointment is having on the agency, saying he and others were just focused on their work.

But in a sit-down interview with American Banker on Monday, Cordray acknowledged that his Senate confirmation, which cleared with a bipartisan majority, has boosted morale at the agency and provided personnel with additional confidence.

While bankers might fear that means a more aggressive CFPB, Cordray is quick to suggest otherwise, arguing he's balancing safety and soundness concerns with additional consumer protection. He also talked about what he sees as the agency's top accomplishments during its first two years of operation as well as the biggest challenges ahead.

Following is an edited transcript of the interview.

Since you've been at the CFPB, what would you say are the greatest accomplishments to date?
CORDRAY: There are a number of accomplishments, actually. First are the changes that we are effecting in the mortgage market, which is the largest consumer finance market and was the one that was most responsible for the credit freeze and the financial meltdown. For the agency to put new protections in place around that and yet, to be sensitive and responsive to access to credit issues, I think was quite a good piece of work by us. And it's obviously drawn a lot of positive commentary.

I think that our consumer complaint function has been influential with the industry. There were a lot of concerns the industry had about that to start with. But we've been working on it, it's been a very efficient and sensible process, and it is resolving a lot of issues. And we just actually received our 200,000th consumer complaint, which for us represents a continued growing trajectory of people now knowing that they can come to the CFPB to get help and to complain about a bigger array of products over time. That's meaningful.

The enforcement actions we've taken to make it clear that when we see deceptive marketing and other practices at these large institutions we won't hesitate to act, I think, is important. And so is our work on a growing range of issues, such as financial education, financial literacy, and financial empowerment -- both for consumers generally and with respect to our specialty populations such as service members, students, older Americans, and those of low-to-moderate income. It's really a great set of work that we're doing. There are many challenges, there's much to do, but I'm pleased at our progress thus far.

And I think that partly was what was reflected in what was a strongly bipartisan vote on confirmation a few weeks ago. And I told everybody here I think this reflects their work. It's good to know that I'm going to be here beyond the end of this year and have some time ahead for us to follow through on a lot of things we had under way.

I know you've said the battle in the Senate didn't impact how the agency was before or where it will go in the future but does your confirmation have some influence on your way of thinking?
I think two things. First, I do think that the key for us was before that occurred, everybody here was dedicated to keeping their eye on the ball and recognizing that we all came here because of the mission: to protect and empower consumers in a financial marketplace. It's a marketplace that is much more complex now than it was a generation ago and people need this agency to do its work well. But I do think going forward, it creates a further sense of certainty. It's been a morale boost here. And again, the fact the vote was so strongly bipartisan was a great reflection on everybody here. I think they recognize that as such, so it redoubles their enthusiasm to continue doing good work.

Does that boost in certainty and morale help with staffing up the agency and the recent turnover of senior officials? How close are you to being at that point where it's a solid entity?
We continue to grow steadily. First of all, this is a great place to work and it's a very attractive place to work because of our mission. And most everybody who comes here, they're attracted by the mission. We continue to get hundreds of resumes for our positions and tremendous talent. I think that some of the stories about departures were overblown. I mean, it was natural for us to see some departures two to three years in. Some of our people who have management consulting backgrounds are used to doing short stints in places and then going to another place. So some people were on time to move on with their lives. But we get great candidates applying for positions. We're now a little over 1,300 employees, so we've grown steadily over each of the last three years. And our processes that are in place are very solid. Our recruiting is solid. And it's just very interesting to see the kind of people that we're bringing in.

How far off do you think you are from being completely staffed?
I would guess 12-18 months at the pace we're going. And part of it is each year we get a better sense of how much were doing with the people we have. It's different when you have 500 than when you have 900. It's different when you have 900 than when you have 1,300. And we get a better sense, as we become more familiar with it, of how much work we need to be doing and how much work we're able to do.

The CFPB's mission is clear: to protect consumers. But bankers fear the CFPB is so focused on their mission that they're going to forget the survival and safety and soundness of an institution. How does that make you feel?
I understand the concern. First of all, this is all in the statute. I also sit on the FDIC board so I do see and spend some time seeing things from the standpoint of regulating institutions in a different way. I serve on the FSOC, which is with all the regulators and we've been meeting quite regularly to discuss issues about the overall strength of the financial system. I will also say that the oversight that I get from Capitol Hill puts us in mind of those issues as well.

One of the things we learned as we worked on the mortgage rules is that those rules are going to provide real, significant protections for the mortgage market and for consumers who will not be subject to some of the reckless and irresponsible products and marketing that we saw in the mortgage market six to seven years ago. But at the same time, we were very mindful and learned a lot about the challenges in this market of access to credit. If consumers can't get the loans it doesn't matter what kind of protections they have because they won't have anything to protect. That's something we've learned and it led to a balance. That's the balance that is reflected in the QM rule that I think has been widely praised and we're pleased about that. But it's also a balanced perspective that we're taking to other issues in addressing them in the future.

Still, some lenders are worried about making the January deadline. And there's this growing concern that those lenders will either only do QM loans or jump out of mortgages entirely, perhaps creating a short-term credit crunch until they can fully implement the rules. What is your response?
I would say a couple of things. Number one, we've really been hard at work with the industry on implementing these rules during this current year. And we're well along on that. We have a very bird's eye perspective on how they're coming along. They've made tremendous progress and we've found ways to address concerns they've raised about what the rule actually means instead of just leaving it to them and saying "It's your problem now." We've been working with them to do some clarifications and tweaks to address operational issues and I think that goes a long way in helping lenders.

We recognize that ultimately for consumers we want these rules to be in place, to be implemented, to be effective. And that's when they'll deliver value for consumers. But I would also say to lenders … that if you have been lending historically according to strong underwriting criteria that are based on sound criteria, you should continue to make those loans. They're good loans. And you'll just be leaving money on the table if you stop making loans because you have some anxiety around the new mortgage rules. They're not meant to stop you from doing sound mortgages where you underwrite carefully. And that's what most banks, particularly community banks and credit unions, do. They should continue to have confidence in their models many of which, they know have performed extremely well, even during the worst mortgage crisis we've known in 80 years. So that was a pretty good test and for them to stop making those loans would seem to me to be pretty short sighted.

Going forward, what would you say are the biggest challenges for the agency?
We continue to work on mortgages. There's more to do there including our 'know before you owe' project which we'll finalize later this year. I gave a speech earlier this year on what we called the 'Four D's.' The first, deceptive and misleading marketing of products, we've already been addressing through our enforcement actions but it's an ongoing issue. There's still a fair amount of work to do for everybody to get the message that they have to market transparently, candidly and clearly with customers.

Second, debt traps. We issued a white paper on payday loans and deposit-advance products, which are a concern to us. People who end up trapped in high-cost debt where they spend most of their life living off of 390% interest, for example, that's a real concern. That sets people back and multiplies their troubles.

Third, discrimination is something we've talked about from the beginning. It's the law. Everybody knows it's the law. They need to be careful to comply with that. It's not fair to any consumer to go into the market and be treated differently than other consumers though it is often not transparent or visible to them but hurting them nonetheless.

And finally, is these markets where we found the structure of the market causes many consumers to run up against dead ends. This includes debt collection; loan servicing, particularly mortgage servicing and potentially student loan servicing; and credit reporting — all instances where the relationship is between two businesses and the customer is almost collateral damage in it. We're trying to shift those markets to take more account of the consumer and recognize consumers have rights, those rights need to be respected, and you need to put the work in to be in compliance with the law.

I think that message is starting to be heard and understood. But it's going to be some hard work for probably several years to make sure that's happening.