Nonbank Lender Group Won't Sue Over CFPB Cordray Appointment

Park City, Utah — For all the talk about legal challenges to the recess appointment of Richard Cordray as director of the Consumer Financial Protection Bureau, at least one group of consumer lenders has no intention of stepping into the fray.

"I want to make it perfectly clear, we are not suing our regulator," Bill Himpler, executive vice president for federal affairs at the American Financial Services Association, told an audience of bank lawyers on Tuesday. His trade group's members include nonbank automotive and installment lenders.

During a panel discussion Tuesday about the newly-empowered CFPB, Himpler offered some rare industry praise for the agency's staff and for President Obama's political instincts in appointing Cordray.

"I have to tip my hat to the president," Himpler said. "This was a great political play. It plays to the themes he was running on," primarily in "cleaning up Wall Street."

Himpler mentioned Rick Hackett, the CFPB's deputy assistant director for installment lending, and called the agency's staff "very professional, very thoughtful."

"There is a receptivity [by the CFPB] to learn and that's very refreshing," Himpler said. "They want to get it right so to a certain extent that creates a level of comfort, but there are other signals that still leave lingering heartburn."

There is some concern how the agency will define large nonbank participants and how much weight it will give consumer complaints, he said.

The Dodd-Frank Act gives the CFPB supervisory power of all sizes of companies in the mortgage, payday lending and private student loan markets. But it can supervise only larger companies involved in consumer installment loans, money transmitting and debt collection. The agency must issue a final rule defining such "large participants" by July 21.

Nonbank finance companies account for roughly $500 billion of the $2.5 trillion credit market, which excludes mortgages and payday loans, Himpler said. About 35% of American consumers have some type of product from nonbank financial companies that now fall under CFPB supervision, he said.

Don Lampe, a partner with the Dykema law firm, joked about Cordray's recess appointment, saying: "There are those of us having trouble using the D-word — director."

But he also said that compliance executives "down in the trenches," and their intermediaries, such as outside lawyers, "have to say they need to comply."

"We tend to say whether or not we have a duly-appointed director is not as relevant as it might be because advisors will tell you prudence and a conservative approach dictates compliance," Lampe said.

Lampe said he was concerned because the CFPB appeared to inform regulated companies through a combination of bulletins, guidance, blogs, videos and press releases.

"Some fairly material industry-changing initiatives that ordinarily are handled through regulatory processes are being done informally," he said. "It does pose due process concerns for old timers who are used to due process in regulatory procedures."

The CFPB's hiring of bank examiners from other agencies also has raised the hackles of nonbanks.

"We're not banks, we're not federally-insured, we're market-funded, not deposit-driven, and it's a different business model and needs to be treated as such," said Himpler, who questioned how the agency will assess risk to consumers.

"If the bureau deems that your company poses a risk to consumers you still may be regulated by the bureau," he said.