WASHINGTON Ethics concerns raised by House lawmakers about Raj Date, the former No. 2 at the Consumer Financial Protection Bureau who left to form his own firm, appear overblown, according to ethics experts and even some of his accusers.
The House Oversight and Financial Services committees raised questions about Date in a letter to the CFPB last week, suggesting he is inappropriately using his inside knowledge about the creation of the bureau's mortgage rules to benefit his company, which will specialize in offering new consumer products.
Yet some of the panels' concerns appear to be based on faulty information. The charge that Date and others at the firm, Fenway Summer, will lobby the CFPB for clients, is erroneous, based on the services the company says it provides. And many observers view Date's new role as normal and acceptable practice for a former regulator.
"If he isn't representing clients before the agency or telling companies how to circumvent agency rules, we don't see a big problem here," said Michael Smallberg, an expert on "revolving door" issues at the Project for Government Oversight, a nonpartisan group focused on ethics. "We're much more concerned about government alumni who use their inside connections to weaken agency policies."
Smallberg along with Richard Painter, a former chief ethics lawyer for the second Bush administration, were quoted making critical comments about Date's work in a June 19 article published by the Washington Examiner, a conservative daily paper based in Washington, D.C. Their quotes were cited by House lawmakers in their letter to CFPB Director Richard Cordray.
Painter's quotes in the article are the most inflammatory, describing Date's firm as an "extortion racket."
"It gets me pretty upset," Painter told the Washington Examiner in a quote cited by the committees. "It's almost like a protection racket. You hire the alumni of the agency and they'll call up their buddies in the agency to call off the dogs."
Yet that view appears based on a misunderstanding about Date's firm, which does not lobby the CFPB on behalf of itself or clients. In subsequent conversations between Painter and American Banker, it is not clear Painter still sees a problem.
Date formed the firm with other former top CFPB officials this spring after he left the agency in January. Unlike other consulting firms that advise banks and other companies on how to deal with compliance and enforcement issues with regulators, such as the firm Promontory Financial Group, Fenway is designed primarily to offer financial products of its own while also providing additional advisory services to other institutions seeking to create new consumer products.
In an interview, Date made it clear the firm does not intend to deal with the CFPB directly, or help others work out issues with the agency.
"I can't influence what the CFPB does," Date said. "To influence the agency, you would have to lobby the agency, or represent clients before the agency. And we do neither."
In an interview and subsequent e-mails, Painter said that if that is the case, he is no longer as concerned.
"This is not the arrangement described to me by the Washington Examiner," Painter said in an e-mail exchange. "I do not have concerns with what is set forth" by American Banker.
In a follow-up phone conversation, Painter said that he has never independently investigated Date, and his opinion was based only on the conduct described to him.
"I have never formed an opinion of what he has done or not done," Painter said. "The opinion I gave was about the conduct described to me by the Washington Examiner. No independent source has verified that conduct."
If Date's firm is not lobbying the CFPB, he sees less reason for worry.
"I have a much lower level of concern if people in the company are not representing back to the agency," Painter said.
While citing both Painter and Smallberg, House lawmakers in their letter appeared focused on a somewhat different issue: that Date's firm will build a business based in part on offering "non-qualified" mortgages. During his tenure at the CFPB, Date was one of the principal officials at the agency helping to finalize a slew of mortgage rules, including the definition of the "qualified mortgage," a set of ultra-safe loans that must meet certain underwriting criteria.
Banks have raised concerns that the QM definition is too restrictive, and that lenders may be afraid to make loans that fall outside that definition because they will face greater legal liability. But CFPB officials, including Cordray, have insisted that there are ways for banks and other lenders to make profitable non-QM loans.
In their letter, lawmakers warned that Date's firm will be in a position to take advantage of his inside knowledge about the drafting of the QM rules in order to be able to make non-QM loans.