WASHINGTON — In a long-awaited showdown over the future of the Consumer Financial Protection Bureau on Tuesday, Republicans and Democrats sparred over whether the Senate should proceed with the nomination of the bureau's first director.
GOP members of the Senate Banking Committee dug in their heels and reiterated their pledge to block the confirmation of any nominee until changes are made to the agency's structure.
But Chairman Tim Johnson dismissed those senators as a "vocal minority," accusing them of playing games with the confirmation process and holding the nomination of former Ohio attorney general Richard Cordray hostage.
"This political gamesmanship is preventing Americans from receiving the consumer protections they deserve and putting community banks and credit unions at a competitive disadvantage to nonbank financial companies," Johnson said at Cordray's confirmation hearing.
But Sen. Richard Shelby, the committee's top Republican, insisted the hearing was premature. He said the committee shouldn't even consider a nominee until certain changes are made, including changing the CFPB's leadership from a single director to a five-member commission, subjecting it to the appropriations process and making it easier for a council of regulators to override the bureau's decisions.
Neither the White House nor the Democrats have made any attempt to meet those demands, which were outlined in a letter signed by 44 GOP senators earlier this year, Shelby said.
Without those reforms, he said, the director would have a staggering amount of control over Americans' financial choices, yet be virtually free of any constraints on his authority.
"No one person should have so much unfettered power over the American people," he said. "It blatantly violates the spirit of our democratic system of government."
Sen. David Vitter, R-La., also said he was unwilling to support any nominee until Congress implements "proper checks and balances."
"This is a constitutional, checks and balances issue, not a partisan issue," Vitter said. "There's a real danger of the CFPB being a super bureaucracy that does a lot of damage to the economy by overreaching in its attempts to make decisions for consumers."
Shelby said he has no qualms with Cordray, and thanked him for meeting privately with him and Sen. Bob Corker, R-Tenn., before the hearing.
"You're caught between a big substantive debate here, as you well know, and that's going to have to be resolved before we move this nomination further," Shelby said.
Johnson, however, said Republicans are rehashing a debate that was settled last year when Congress created the CFPB under the Dodd-Frank Act.
"The misleading claim of no CFPB accountability —drummed up by special interests and put forth by a vocal minority — should be expressed for what it is: an attempt to destroy the bureau's ability to do its job of protecting American consumers," Johnson said.
He was joined by Sen. Jack Reed, D-R.I., who dismissed the Republicans' strategy.
"This notion of 'Let's wait till we get it perfect until we appoint somebody' would have delayed, I think, the election of George Washington for many decades," Reed said.
Cordray, who currently serves as the CFPB's enforcement director, attempted to address Republican criticism that the bureau isn't accountable to Congress.
If he is confirmed as director, Cordray said, "I promise that you will have one person who will always be accountable to you for how we are carrying out the laws laid down by Congress and I will be eager to hear your thoughts about how we should do our work."
Corker asked Cordray to address comments he made before he came to the CFPB that he hoped to one day run for governor of Ohio. Corker said that would raise concerns that Cordray may simply be out to make a name for himself.
But Cordray said he made those comments before he came to the agency, and assured the committee that he currently has no such ambitions.
"I have no plans to run for any political office," he said. "I am understanding that the work of a federal, independent agency and law enforcement in particular must be completely absolved of politics. The two have not mixed, and that's how I have approached my job."
During the hearing, Cordray touched upon one of the GOP's chief objections: the super-majority vote required by the Financial Stability Oversight Council to override a CFPB decision. Asked whether that was an impossibly high threshold, Cordray acknowledged the hurdle is high, but said it is appropriate.
"I would hope and expect that concerns that they may have about our work, concerns that that we may have about their work, are concerns that we would discuss regularly, that we will work those concerns out," Cordray said, "and that it would never be necessary to invoke some sort of super process to override our rules."
Cordray also vowed that the CFPB, under his watch, would not impose further burdens on community banks and credit unions.
He also sought to allay Republican concerns about his aggressive enforcement style.
Cordray said his options as AG were generally limited to filing lawsuits or doing nothing. But he said the CFPB has a broader range of tools, including research, rulemaking and supervision, that may be more effective.
"I know from my own experience that lawsuits can be a very slow, wasteful, and needlessly acrimonious way to resolve a problem," Cordray said. "The supervisory tool, in particular, offers the prospect of resolving compliance issues more quickly and effectively without resorting to litigation."
"We are continuing to build our capacity to make effective use of this entire range of tools," he added.
As attorney general, Cordray instituted an early warning policy of notifying parties and giving them a chance to try to resolve issues without going to court.
But Cordray, who gained national prominence for going after banks for mortgage servicing problems, didn't shy away from enforcement.
"If people are ignoring or evading consumer protections laws - and seeking to gain an unfair advantage over their law-abiding competitors - then litigation is an essential tool, and we will use it judiciously," he warned.
He said law enforcement that is "evenhanded, fair and reasonable," can help level the playing field for honest businesses and give consumers the confidence to participate in the market.
He also touted the CFPB's early efforts to streamline disclosure forms, picking up the mantle from the bureau's architect and former de facto leader, Elizabeth Warren.
"We are looking to find the same sweet spot in the thicket of other regulations we have inherited from other agencies," he said.
Consumer advocacy groups, including the Consumers Union and National Council of La Raza, along with a slew of businesses, issued statements ahead of the hearing calling on Congress to confirm Cordray and let the bureau begin its work.
"It's time for Congress to set aside politics and confirm Richard Cordray so the CFPB can fully protect consumers," said Pamela Banks, the senior policy counsel for the Consumers Union. "Holding up this nomination may be good for the big banks and shady lenders, but not for the families whose finances are drained by high-cost loans and other unfair financial practices."
Travis Plunkett, the legislative director for the Consumer Federation of America, said the hearing was a crucial first step in making sure the bureau is "an effective cop on the beat."
"While CFA does not endorse specific nominees, Cordray has the requisite knowledge of the financial services marketplace and a very strong track record as an effective, even-handed financial regulator," Plunkett said in a prepared statement.
