CFPB needs more than a caretaker to succeed Cordray

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There are widespread rumors that Consumer Financial Protection Bureau Director Richard Cordray plans to leave the agency within a few weeks to run for governor of Ohio. There are indications that, if that happens, the administration may appoint Treasury Secretary Mnuchin to lead the agency while he continues his full-time job.

While Mnuchin could bring in a strong deputy director and senior staff to run the organization on a day-to-day basis, neglecting to appoint a full-time director could shortchange efforts to improve the bureau’s transparency and undertake other reforms that are needed in the post-Cordray era.

The need to reform the CFPB in its form, function, structure and transparency under new leadership is significant. The development of the CFPB requires big-picture planning that has been largely lacking to date. The agency has developed as it has operated; it has never undergone a full top-to-bottom review of its form and structure.

A new director should consider reforming almost every aspect of the agency, including its structure, staffing, how it examines financial institutions and the type of enforcement actions that it brings. Engaging in this type of analysis and reform will take time and focus, and only a full-time director would have the bandwidth to work on this in addition to running the organization on a day-to-day basis.

Even aside from any long-range thinking, the challenges just of running the organization on a day-to-day basis are going to be significant. A new director will have to address staffing needs and challenges; recently implemented rulemakings and those that are still in the pipeline; enforcement and supervision priorities that conflict with the Trump administration’s deregulatory agenda; and defending the agency’s change in priorities from likely criticism by Democrats and consumer advocates.

In other words, even with a strong, empowered staff, a caretaker director will not have the bandwidth to address all the day-to-day challenges facing the agency and have the time to investigate and implement all the long-term structural changes that the agency needs. Leaving these opportunities on the table shortchanges the Trump administration’s deregulatory priorities and opportunities.

In addition, having the Treasury secretary serve as the bureau’s director could conflict with long-term concerns about the CFPB.

For example, having the Treasury secretary run the CFPB impedes the long-standing push for transparency at the agency. Specifically, the CFPB was not designed or intended to be a transparent organization. Its creators did not include in the structure most of the traditional tools of congressional oversight, such as subjecting it to the annual appropriations process and making other senior staff aside from the director subject to the scrutiny of Senate confirmation. This has made the organization very opaque, and has been one of the primary Republican criticisms leveled at the agency since its founding.

But having the Treasury secretary run the CFPB would make it even more opaque.

Further, combining the leadership of the CFPB and the Treasury Department would further weaken the already weak oversight of the bureau by the Financial Stability Oversight Council. The FSOC does not have much oversight or leverage over the CFPB to begin with. But since Mnuchin is already chairman of FSOC, installing him as CPPB director would further undercut the oversight council’s role as being a check on the bureau’s power.

Appointing Mnuchin as CFPB chief would place a significant amount of power over financial institutions and other regulated entities in his hands. Director Cordray has frequently and successfully used his position to try to cajole financial institutions to change policies, practices and procedures. Regulated entities often acquiesced because of the implied threat of enforcement behind the “suggestion.” Combining that power to cajole with the power of the Treasury Department would give Mnuchin extraordinary leverage over regulated entities.

Finally, one of the tools of the agency that Director Cordray has taken advantage of that would be curtailed under a Mnuchin-led bureau is the power of the bully pulpit.

In particular, Director Cordray has used his position to advocate for the agency and defend it from attack. However, if Secretary Mnuchin were to concurrently serve as Treasury secretary and CFPB director, his ability to use the CFPB’s bully pulpit to defend the agency would be curtailed.

Specifically, it is safe to assume that any changes to rules or structure that the CFPB undertakes is going to be viciously attacked by the agency’s current apologists. Those attacks will need to be met head on by the new director, and a part-time director will not have the time or ability to “do the rounds” necessary to defend the agency.

Cordray’s potential impending departure from the CFPB presents a significant opportunity to implement the Trump administration’s deregulatory agenda and thereby help foster economic growth. That requires a full-time, dedicated CFPB director who can focus on the day-to-day operation of the organization and the long-term structure of the organization. Treasury secretary is a significant responsibility, and should be the sole focus of the office’s occupant. The Trump administration should not mix the two offices.

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