Republican lawmakers have long complained that Cordray consistently oversteps the CFPB’s mandate. Photo credit: BLOOMBERG
WASHINGTON — Richard Cordray plans to step down as the head of the Consumer Financial Protection Bureau, the controversial consumer watchdog created by President Barack Obama following the 2008-09 financial crisis, amid growing speculation that he will run for governor of Ohio as a Democrat.
His decision to leave at the end of the month means President Donald Trump should soon get to install his own director atop the bureau, a regulator set up to police mortgages, credit cards and other financial products.
Cordray, 58, revealed his plans to leave the agency in an email to CFPB staff on Wednesday. He did not specify in the memo what he plans to do next. Washington lobbyists and lawmakers have been predicting for months that he would resign to run for governor in his home state.
“Together, we have made a real and lasting difference that has improved people’s lives,” Cordray said of the CFPB in his email. “I trust that new leadership will see that value also and work to preserve it –- perhaps in different ways than before, but desiring, as I have done, to serve in ways that benefit and strengthen our economy and our country.”
Cordray — the CFPB’s first-ever director — is leaving before his five-year term expires in July 2018. His status has been in question ever since Trump’s election win.
“We are long overdue for new leadership at the CFPB, a rouge agency that has done more to hurt consumers than help them,” House Financial Services Chairman Jeb Hensarling, R-Texas, said in a Wednesday statement. “The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower incomes.”
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The CFPB for years has been accused of overstepping its authority on regulating auto lenders.
In April 2016, senators pressed Cordray on the agency’s using enforcement, rather than rulemaking, to set an auto-lending standard, but he maintained that regulation by enforcement is the bureau’s best option. The CFPB at the time had issued enforcements against major auto lenders — including Ally Financial, Fifth Third Bank, American Honda Finance Corp., and Toyota Financial Services — that limits the lenders’ ability to adjust dealers’ retail margins on auto loans.
U.S. Sen. Mike Rounds, R-S.D., said he was concerned that the auto lenders, who did not admit guilt even though they agreed to change lending standards based on CFPB requests, made a business decision to settle the lawsuit with minimal expense. Cordray, however, defended his stance on regulation by enforcement. He said one option is to do research and adopt a rule. “But another way is to investigate facts of individual circumstances, and if you find an actual violation of law, clean it up. That’s what we do all the time by enforcement.”
He called regulation by enforcement “a nice slogan people like” and said that somehow it’s become “a bad thing.”
In recent months, Republicans had urged Trump to try to remove Cordray, claiming he lacks accountability and that the CFPB has stifled lending during his tenure. In contrast, Democrats heaped praise on Cordray for making the young watchdog an aggressive regulator, saying he’s helped recover almost $12 billion for consumers. The two political parties had also argued over whether Trump has the legal authority to fire Cordray.
The squabbling isn’t new. In recent years, the CFPB has been at the center of some of the most bitter partisan fights over post-crisis financial rules. GOP lawmakers opposed the agency’s creation through the 2010 Dodd-Frank Act, but were outvoted by Democrats. Obama then made Cordray director in January 2012 in a recess appointment after Republicans blocked his Senate confirmation. Trump now has an opening to remake the agency by picking a leader who is more friendly to banks.
Even as Trump’s push to roll back rules swept through Washington this year, Cordray continued to be a thorn in the industry’s side. In July, he approved a rule that makes it easier for consumers to sue their banks by restricting lenders from settling disputes tied t credit cards and other products through forced arbitration. In October, he announced the completion of a top CFPB priority: a rule aimed at cracking down on payday lenders. Republican lawmakers overturned the CFPB’s arbitration rule last month.
Other initiatives that came during Cordray’s tenure include a high-profile enforcement action against Wells Fargo & Co. for setting up fake customer accounts and rules that require banks to make a good-faith effort to ensure mortgage borrowers can repay their loans.
U.S. Sen. Elizabeth Warren, D-Mass., who is credited with conceiving and setting up the CFPB, has said its actions were necessary to protect ordinary Americans in the wake of the worst economic downturn since the Great Depression.
Cordray is the former attorney general of Ohio who lost a bid for re-election in 2010 before being named to lead the CFPB. He previously held other government posts in Ohio including state treasurer, solicitor general and state representative.
Ohio’s current governor, Republican John Kasich, can’t seek re-election when his second term ends in January 2019. Several candidates have filed for the Democratic nomination so far. Cordray’s entrance into the race would likely cause at least some competitors to withdraw because Cordray is the most popular among party activists, said John Green, a political science professor at the University of Akron.
At the CFPB, a shadow has hung over Cordray ever since a federal appeals court ruled in October 2016 that the agency was unconstitutionally structured. The Washington-based appellate court said the autonomy granted to the CFPB’s director — who could only be fired by the president for cause — was a stark departure from how agencies are typically set up.
At the request of the CFPB, the court is reconsidering its decision. While the judges deciding the case could disband the CFPB, the Trump administration would prefer that it just give the president power to fire the agency’s director at any time for any reason. The banking industry says it wants the CFPB reformed so that a bipartisan commission votes on regulations and rules, instead of a single director controlling policy.
“While not always agreeing with director Cordray’s decisions and rationale for those decisions, we wish him well in his future endeavors,” Chris Stinebert, CEO of the American Financial Services Association, said in a statement on Wednesday. “We appreciate his dedication to the interests and the protection of consumers. Unfortunately, his decisions were not always completely developed and created undue burden on consumers’ access to credit, which curtailed lending to the consumer that the Bureau is mandated to protect.”
AFSA said it “looks forward to working with Cordray’s successor in the protection of consumers and providing safe, affordable access to credit in communities across the United States.”
Automotive News staff contributed to this report.