For House GOP, Cordray Appointment Is Still Issue No. 1

WASHINGTON — While Senate Republicans seem to have largely moved past President Obama's controversial recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau, it was clear Thursday that the House GOP has not.

In Cordray's first semiannual report to the Financial Services Committee, which was focused on a slew of the agency's new activities, Republicans opened with terms like "unlawful," "arrogance" and "Constitutional crisis" to describe the appointment.

"In my humble opinion, I believe you sit before us as either an unconstitutional appointee, an unlawful appointee, and using the president's characterization, you suffer from a loss of credibility from the outset," said Rep. Jeb Hensarling, R-Texas, vice chairman of the committee.

Rep. Scott Garrett, chairman of the capital markets and government-sponsored enterprises subcommittee, was heated in his condemnation of the appointment.

"Mr. Cordray, the fact that you are here today is quite troubling, and yet another display of this administration's arrogance and flagrant disregard of the constitution," said the New Jersey congressman.

Their statements appeared aimed at keeping the appointment in focus, at the same time the agency moves rapidly to wield its authority -simplifying loan disclosures, implementing underwriting procedures and designating nonbanks for monitoring — and Cordray engages the industry as the clear face of the new regulator.

With Republicans stalling over Cordray's nomination, President Obama recess-appointed him to serve as the agency's director, arguing the "pro forma" sessions that technically kept the Senate open for business didn't count. (Senate Republicans had said they would not confirm Cordray until the agency was made more accountable.)

Critics argue the Dodd-Frank Act, which created the bureau, required Senate confirmation of a director before some of the bureau's authorities were effective, such as the launching of its nonbank supervision program.

Rep. Francisco Canseco, R-Texas, claimed the appointment could produce uncertainty like that facing the health-care overhaul, which faces a potential repeal following arguments over its "individual mandate" for getting health insurance this week in the Supreme Court.

"Unfortunately, I believe it won't be very long before matters involving the CFPB end up in the very same place. We must be ever so mindful today that President Obama gave a recess appointment to Mr. Cordray despite the fact that the Senate was in session in the time," Canseco said. "This political maneuver by the president has set up a constitutional crisis at a time of already-heightened uncertainty in our economy."

Rep. Barney Frank, D-Mass., the panel's ranking Democrat — and a principal author of the financial reform law — countered the GOP criticism by pointing out the level of congressional oversight the CFPB has already faced.

Frank called it "one of the longest-running series in Washington: the hearings on oversight over your agency, in which my colleagues complain that there is no oversight.

"I look forward to the reruns going forward," Frank said. "One reason they complain about there not being oversight at an oversight hearing and about the structure is that they have nothing firm to complain about. The agency has been in existence now for a considerable period of time and there are no problems. None of these horrors and abuses, that we were threatened were going to happen, have happened."

The panel's direct questioning of Cordray, while pointed, focused on the bureau's policies — not his position. The committee grilled him on the CFPB's efforts to be transparent, on the potential for new industry-wide servicing standards and on how the bureau will apply the definition for "abusive" practices in Dodd-Frank, among other topics.

Responding to Rep. Maxine Waters, D-Calif., Cordray reiterated bureau plans to develop mortgage servicing standards for all players, not just the large institutions subject to the multistate $26 billion mortgage settlement. Yet Cordray said the settlement could serve as a basis for establishing standards across the board.

"We do have intention of developing servicing standards that would apply across the industry. One of the things that we want is for all servicers to be put on a level playing field," he said.

Calling the settlement "an important step forward, but … a partial step," Cordray added, "There's no question that the provisions in the settlement which were worked over very carefully … are going to be the basis for trying to provide broader guidance to the market."

The committee also probed for more clarity from the regulator over how the bureau will enforce Dodd-Frank provisions against "unfair, deceptive, or abusive acts or practices." While similar rules existed before the reform law, the statute added "abusive," leading to some puzzlement over how regulators will define the new term.

Frank said "abusive" was clearly defined in the new law, referring to cases where a financial institution had taken unreasonable advantage of a customer's ignorance in selling a product.

"When you go to an 80-year-old and urge her to refinance — when she's nearly paid off her mortgage — refinancing for some people might be a good idea," he said. "But when it's sold to an 80-year-old it's probably not such a good idea."

But Cordray has said — and repeated on Thursday — that while the CFPB can act on the definition from Congress, how it will be enforced will likely depend on the specifics of a situation.

"For us to define what 'abusive' means feels a little presumptive given that Congress defined what 'abusive' means," he said. "Our job is to carry out what Congress has given us as the law that binds us, not to make up that law ourselves. Having said that, we have to go in and supervise institutions, so there is some guidance that we have provided around that set of terms — unfair, deceptive and abusive acts or practices — in our examination manual, which is public. But I do think that how the law that Congress has defined applies in particular situations is something that we're going to have to measure on a facts-and-circumstances basis as we go."