You'll Never Get Real Oversight of the CFPB This Way

WASHINGTON — Republicans on the House Financial Services Committee finally caught Consumer Financial Protection Bureau Director Richard Cordray in a lie on Wednesday, when he responded to a lawmaker by saying, "I actually enjoy coming before the committee."

Unless Cordray is a masochist, there is no way that could be true.

For three hours, Cordray was subjected to hostile questioning from most of the GOP panel members and a few Democrats. They demanded answers about everything from the agency's plan to rein in payday lending to allegations of discrimination and retaliation against employees. If bankers — many of whom are frustrated with the CFPB given the sheer number of regulations it has released — were watching, many doubtless would have been cheering on the sidelines.

But if the committee meant to conduct true oversight of an agency so many Republicans clearly detest, it failed miserably.

Time and again, lawmakers effectively stepped on their own lines, asking Cordray important questions and never bothering to let him respond. They allowed theatrics to trump (pun intended) substance, using their time to berate the CFPB chief instead of engaging in a productive discussion.

Generally, the exchanges worked like this:

1. The lawmakers asks a question.
2. Cordray starts to answer.
3. The lawmaker interrupts Cordray, yelling at him that he hasn't answered the question.

Perhaps the most glaring example of this was an exchange between Rep. Ann Wagner, R-Mo., who seized on comments made by Cordray earlier that he had never "ducked and dodged" questions from committee members and that he responds to all letters from panel members in a timely fashion.
"All right, Director Cordray, let's have a conversation," Wagner said.

She noted that the committee had sent a subpoena to the CFPB in December, requesting documents related to serious accusations that the agency discriminated against employees and retaliated against those who raised issues internally.

"Despite you saying the CFPB is committed to transparency and compliance, always answer our letters, never duck or dodge, you all have failed once again to respond adequately to this subpoena," she said.

Here's where the problems start. Following is a transcript of the exchange:

Wagner: You have failed to comply.

Cordray: In what way?

Wagner: That's the—

Cordray: Give me a specific—

Wagner: You haven't responded to the subpoena or to the letter.

Cordray: Give me a — of course we've responded. We've produced another, I think, 20,000 pages of documents.

Wagner: Not in any adequate way, shape, or form.

Cordray: Well, okay, tell me how it's inadequate? That's just...

Wagner: Will you submit — will you absolutely right now commit to complying with our committee? If so, when?

Cordray: We have been working to comply all along. We will continue to work to comply.

Wagner: "Working to comply," Director Cordray, is what we call ducking and dodging.

Except the person ducking and dodging the question appears to be Wagner, not Cordray. After accusing him of a failing to adequately respond to a subpoena — potentially a crime — she never provides specifics as to how the agency's response is inadequate.

And make no mistake, this is an important question. American Banker first reported in 2014 that the agency was likely to give higher evaluations — and therefore higher pay — to white employees than African-Americans or Hispanics. The agency responded by scrapping its employee compensation system and remitting $5 million to most affected of the staff members. But there are ongoing questions about allegations of retaliation by management, questions that aren't resolved by pointlessly scolding Cordray.

And unfortunately, this type of exchange was the rule, not the exception. To be sure, Congressional hearings often bring out lawmakers' dramatic sides, resulting in grandstanding. But the ones with Cordray in the House Financial Services Committee are particularly histrionic. In contrast, the Senate Banking Committee hearings with the CFPB chief are far more sedate, and are all the more illuminating because of it.

Rep. Scott Garrett, R-N.J., used his time to question Cordray about the CFPB's efforts to study arbitration clauses. But the exchange quickly devolved into bickering about whether the 2010 Dodd-Frank Act, which mandated that the CFPB look into arbitration, trumps the 1929 Federal Arbitration Act, which allows arbitration clauses in contracts.

Following is a transcript of part of the exchange:

Garrett: Has Congress ended the ability of arbitration?

Cordray: So in the Military...

Garrett: That's a yes or no question.

Cordray: In several respects, yes, they have.

Garrett: I didn't say 'in several respects.' I said—

Cordray: Yes, in several respects they have.

Garrett: — have they ended the use of arbitration?

Cordray: Under the Military Lending Act they barred arbitration clauses in lending contracts to service members.

Garrett: So we can't seem to get—

Cordray: Under Dodd-Frank they barred it in residential mortgage contracts, for the most part.

Garrett: Have we totally eliminated arbitration?

Cordray: No, but they then—

Garrett: Okay. Thank you.

Cordray: — but they gave us, then, authority Congress conferred it to us. I'm not making it up.

That exchange is exhausting to read, let alone watch — now imagine dozens like it playing out over three very long hours.

Sometimes lawmakers resorted to props to make their point. Rep. Steve Stivers, R-Ohio, had an aide hand Cordray a toddler's T-shirt and asked him to put it on. Cordray understandably declined.

"You wouldn't fit in it," Stivers told him. "So the two ways you could fit in that are go on a massive diet and restrict yourself, which is what a lot of our community financial institutions are doing to make themselves smaller to serve their clients less; or they could strain the T-shirt and break the T-shirt, the T-shirt being the regulation. That's the problem you're putting folks in."

There's a serious point in what Stivers is saying: the proliferation of regulations is crushing small institutions. But the point is lost amid a ridiculous discussion about a child's T-shirt.

It's a good example of why this semiannual hearing is so often a disappointment. Lawmakers are raising important issues, including the CFPB's tendency to use enforcement authority in lieu of rulemaking powers, the need for regulatory relief for small banks, the agency's plans to rein in certain products and its treatment of its staff. But those issues are subsumed by the posturing and shouting.

It's sometimes as if the lawmakers believe they are in the finale to the movie "A Few Good Men," with the congressman playing Tom Cruise's role and Cordray cast as Jack Nicholson's character.

"Was it Elizabeth Warren who absolutely ordered and authorized the [building] renovation, sir?" Wagner demanded at the end of the hearing.

"I don't know. It seems like that's what you're trying to get me to say," Cordray replied.

"I want the truth, sir," Wagner replied.

Maybe they can't handle the truth. One thing's for sure: We're not going to get to it this way.

Rob Blackwell is the Washington bureau chief of American Banker. The views expressed are his own.