My Life on the CFPB 'Dark Side'

On Friday, May 4, 2012, I ended my career at the National Federation of CDCUs. I attended a White House conference on cooperatives, flew back to New York that evening, cast a last, fleeting look from my office window at the work-in-progress Freedom Tower, and locked the door behind me. On Monday, May 7, I reported to work as Assistant Director of the Consumer Financial Protection Bureau.

My mission: build out and manage the Office of Financial Empowerment, a new office which was to shape policies and programs for low-income and economically vulnerable consumers. I was excited to begin this new chapter, using different tools to advance the cause I believe in. Some credit union colleagues saw it differently. Attending CUNA's Governmental Affairs Conference for the last time as a bona fide credit union "lifer," I was met with the greeting, "I hear you're moving to the 'dark side.' " Although I had spent thirty-odd years doing hand-to-hand combat with regulators (chiefly, NCUA), now — as they saw it — I was switching teams, "breaking bad."

'We Hate the CFPB'
Many credit unions probably still hold that view. Recently, a long-time friend who runs a $20 million credit union put it succinctly: "We hate the CFPB." Between NCUA and CFPB, she complained, "we get new regulations every week."

So, what was life like at the "evil empire" known as the Consumer Financial Protection Bureau?

Coming to this new Washington agency at the age of 66, after decades of running a small nonprofit, was…different. Culture shock hit me swiftly. My first task at the CFPB was to write a blog. "Easy," I thought. "I wrote articles and press releases for years, I can do this." Well, not so much. The margins of my draft were filled with comments from lawyers, economists, policy staff, communications staff and assorted others. "Nothing personal," I learned. This was business as usual at the Bureau. A CFPB veteran of one year wisely counseled me not to quit my "dream job" immediately.

The "veterans" were staff with a year or so under their belt. These were folks who reminisced about the time when the whole CFPB staff was small enough to meet in the elevator lobbies — and had to, because they were working in temporary facilities. I called them "CFPB 1.0."

When I joined the CFPB in May 2012, it was CFPB 2.0 — still a work in progress. The mantra we heard went like this: "We're trying to fly the plane while we're building it." We also heard that the "CFPB is a 21st century agency" which was being staffed by the "best and the brightest."

In fairness, my colleagues were probably the brightest people group of people I'd ever been around. As I sat in the agency's policy committee meetings, I could not help but be impressed by the formidable expertise assembled. My colleagues worked hard, sometimes insanely so, to produce regulations and research in time for statutory deadlines. Unlike the stereotypical apathetic government workers, the CFPB team seemed overwhelmingly dedicated and energized. The general feeling was that we were doing something historic in building this new agency from the ground up. Director Richard Cordray emphasized to us the extraordinary importance of our service on behalf of American consumers. I believed him then, and I still do.

There was, however, a downside to the CFPB's self-image as comprising the "best and the brightest." For those of my generation, the term recalled the Kennedy presidency and the policy elite that led the U.S. into the Vietnam War. I felt that a certain institutional arrogance was an occupational hazard at the bureau. Legal and technical brilliance were not necessarily matched by experience "on the ground" outside the beltway. Washington is the home of unintended consequences. Assembling a high-powered team of MBAs, PhDs, lawyers, management consultants and the youthful digerati does not provide insurance against such consequences.

Something Borrowed
Moreover, while the CFPB proclaims itself a "21st century" agency, the reality was that it borrowed many legacy systems, procedures and personnel from other agencies. That's probably unavoidable when creating a new agency from scratch. But as I saw it, this led to mismatches with the culture and mission of the CFPB. Arguably, the personnel issues recently experienced by the CFPB reflect this mismatch.

No one could have expected a start-up agency to get everything right: The "plane" that the bureau was building obviously would have to expect some turbulence. But more than that: the CFPB was facing hostile fire. The Dodd-Frank law came out of a huge financial crisis that threatened an economic cataclysm. But by 2012, the fear and trembling had diminished, and the voices of opposition had grown more strident. The substance and scope of Dodd-Frank and the regulations it spawned were under attack. The single-director structure and the recess appointment of Director Cordray in January 2012 drew heated opposition. The fact was, the bureau had real enemies, who were — and are — aiming live fire at its new "plane." This reinforced an atmosphere of extreme caution, sometimes resulting in delays in policy and regulation-making. Every word and action had to be scrutinized and then scrutinized again.

CFPB 2.0, 2012-13, was an era of rapid expansion. The Bureau added hundreds of staff, largely in the examination and supervision ranks. Offices gradually filled up to their planned size. My own small Office of Financial Empowerment staff grew to six. I could not have been more fortunate: my team was mission-driven, smart, and with a range of practical and policy experience. We set out to define what it meant to serve the low-income, unbanked, underbanked and underserved — all those we saw as economically vulnerable. As we searched for best practices in the marketplace, we frequently came across credit unions at the forefront in developing innovative services and programs to serve the underserved. We launched pilot projects, developed training materials for social service workers, built bridges to federal agencies and more. Increasingly, we were able to raise the profile of our constituency.

It became clear to me that from my background, I brought to the bureau certain assumptions that were not universally shared. Coming from the credit union movement, with a hundred-year history of "promoting thrift," seeing what community development credit unions had been able to achieve, I thought it self-evident that the poor can and do save. But some bureau researchers thought that the poor neither could nor should save, but rather ought to concentrate on eliminating debt. While I did not change everyone's minds, I believe we did succeed in gaining broader acceptance of the need for savings.

The Office of Financial Empowerment was, of course, only one office in the much larger bureau, whose defined mission was to serve all consumers; the underserved were only one sector. For that matter, CUs were only a small sector of the bureau's universe. Director Cordray makes it clear at every opportunity that the bureau doesn't hold credit unions responsible for the financial crisis. (Yes, I know that's small consolation to credit unions when the CFPB keeps putting out rules that include CUs along with everyone else.) The bureau meets frequently with delegations of credit union people, from the national trades on down. It also established a Credit Union Advisory Council, which it had no statutory obligation to do.

A Fringe Constituency
But the reality is that credit unions remain a fringe constituency for the CFPB; they are not its primary focus. NCUA "speaks credit union" as its first language (though CUs may not like what it says). The CFPB does not, and in fact, there were few staff at the bureau with direct credit union experience. At root, it's simple. The bureau's concern is the overall financial marketplace. And specifically, as its name makes clear, its mission is to protect consumers.

How, then, are credit unions to coexist peacefully with the Consumer Financial Protection Bureau? I'll have a few modest suggestions in my next article.

Cliff Rosenthal recently retired from the Consumer Financial Protection Bureau but is best known to credit unions as the longtime CEO of the National Federation of Community Development Credit Unions.