GOP Shifts Tactics on CFPB Concerns

WASHINGTON — After months of attacking the structure of the Consumer Financial Protection Bureau, Senate Republicans pivoted on Tuesday to a new critique of the six-month-old agency.

During a hearing that featured testimony from CFPB Director Richard Cordray, GOP senators scrutinized the way in which the new bureau is carrying out its work, questioning the impact of its rules on small businesses and the broader economy.

"The bureau's recent rulemaking process suggests that its officials like to give the appearance of listening to the public, but really believe that the bureau knows what is best without much public interference," said Sen. Richard Shelby, the Banking Committee's top Republican.

Their concerns represented a tactical shift for GOP lawmakers, who have until now been mostly focused on the structure of the CFPB, arguing it lacks essential checks on its authority (a claim Democrats have rejected).

The move also reflects a new political reality. During the past year, Republicans have been holding up the nomination of Cordray to head the CFPB in an attempt to force the Obama administration to agree to structural changes at the agency. But with President Obama's recess appointment of Cordray on Jan. 4, Republicans have lost much of their leverage on the issue.

Rather than dwell on the recess appointment, Shelby and other Republicans focused on new regulations by the CFPB, including a rule that aims to lower the cost of sending money to relatives overseas by improving price transparency for foreign remittances. Shelby said that the agency's own analysis shows that businesses will need to spend more than 7.6 million hours on complying with the rule.

"Rather than conduct a cost-benefit analysis to determine if this rule is justified, the bureau has indicated that it will impose the rule and examine its impact after the fact," Shelby said.

Cordray responded that the costs of the rule are worth the benefit of protecting consumers who rely on remittances to support family members in other countries.

"Our understanding is it will cost a quarter for every $100 of remittance transfers," Cordray said. "That's a price to pay, but it's a small price to pay for the fact there's never been any consumer protections for people who sent money overseas, often to loved ones and family members, where they couldn't tell what money was going to be actually received."

But Shelby also argued that the CFPB has acted in ways that violate the spirit, if not the letter, of a section of the Dodd-Frank Act that requires them to convene panels to look at the impact of its proposed regulations on small businesses.

"I'm concerned that you've already displayed a propensity perhaps to use technicalities to achieve your own goals," Shelby told Cordray.

Cordray denied the charge, saying that the agency is required to convene small business panels before proposing a new rule. In the case of the rule on remittances, he said, CFPB didn't convene such a panel because it inherited that issue from the Federal Reserve Board, which had already issued a proposal.

Later in the hearing, Republican Sen. Jerry Moran of Kansas tried to pin down Cordray on an issue that banks are watching closely — the question of how the bureau will define the newly created category of "abusive" business practices, in comparison to the long-standing categories of "unfair" and "deceptive" practices.

"And so my request of you is to do what due process requires — if nothing else, fairness requires — define what abusive means before you find some practice to be abusive," Moran said.

Cordray responded that the agency "will be careful about that."

Despite the focus on how the CFPB is carrying out its duties, the committee's Republicans did not entirely drop their pleas for changes to the bureau's structure, or refrain from complaining about the president's controversial recess appointment.

Republican Sen. Bob Corker of Tennessee, who has pressed with other Republicans to replace the CFPB's single director with a board, argued that Cordray is unaccountable.

"In this role as set up, who is it exactly that you do report to?" Corker asked.

Cordray said his position was similar to that of other agencies.

"Well, I would say that we're on the same level with every other independent federal agency in the federal government, and particularly with the other banking agencies. Ultimately in my view we report to Congress," Cordray responded.

In one of the more conciliatory moments between Cordray and the committee's Republicans, the bureau's director agreed to support a change in the law that would ensure that when supervised institutions turn documents that are subject to attorney-client privilege over to the CFPB, those documents will remain privileged, as is the case with other banking regulators.

"We would support an amendment to correct what we believe was an oversight," Cordray said in response to a question from Shelby. "I have told the banking trade associations that, and we're happy to work with them and you to get that fixed."

Cordray also acknowledged that he does not know whether the bureau's actions since his Jan. 4 recess appointment could be overturned if his appointment is successfully challenged in court.

"I don't know that I believe that that's clear-cut one way or the other," Cordray told Sen. Mike Johanns. "But I now have legal obligations I'm supposed to carry out for this bureau."

Democrats on the committee defended the recess appointment and chastised their Republican colleagues for holding up a vote late last year on his Senate confirmation. The recess appointment ended a long partisan stalemate in Congress over the nomination.

"I can't imagine that we're still having this debate," said Democratic Sen. Sherrod Brown of Ohio.

Sen. Charles Schumer, a New York Democrat, commented that an effort by some Republicans on the Banking Committee to organize a protest of the recess appointment by refusing to attend Tuesday's hearing appeared to have fizzled.

"It's a losing fight politically for them. Many on the other side wisely don't want to continue the fight because they know it's on the wrong side of consumers" Schumer said.

Last week, Republican Sen. Roger Wicker vowed to boycott Tuesday's hearing. In addition to Wicker, five of the committee's nine other Republicans did not attend on Tuesday, though that number included Illinois Sen. Mark Kirk, who is recovering from a recent stroke.

Following the hearing, Shelby reiterated his concerns about the recess appointment, but suggested that it is not the role of members of Congress to file a lawsuit over the issue.

"You've got to have standing, you know, to do that in court," Shelby told reporters. "And people that this bureau's rules will be affected by, or have been affected by, will have standing. And I'm sure that this will be challenged. This is unprecedented."

"It's going to be up to the court," Shelby continued. "It's beyond the Congress now."