The Head of the Consumer Financial Protection Bureau Isn’t Going Down Without a Fight

Richard Cordray, the nation’s top consumer watchdog, is one of the most prominent Obama administration holdovers still clinging to office. Earlier this month, in the face of unceasing hostility from the Trump administration, Congressional Republicans, and the business lobby, he announced a new rule that would make it easier for customers to sue their banks. A legislative battle over the rule is coming, perhaps the last major clash of Cordray’s term, which is scheduled to end next July. It looks like he’s going out fighting.

Prior to his appointment in 2012 as the first director of the Consumer Financial Protection Bureau, the 58-year-old bureaucrat served as treasurer and attorney general of his home state of Ohio. He’s also an accomplished appellate lawyer who’s argued seven cases before the U.S. Supreme Court—and, in the late 1980s, he was an undefeated five-time Jeopardy champion.

The CFPB was the brainchild of Democratic Senator Elizabeth Warren of Massachusetts, created in response to the financial crisis as part of the 2010 Dodd-Frank financial-reform law. With Cordray at the helm, the bureau has moved aggressively, resulting in nearly $12 billion in restitution and other relief for consumers, as well as $600 million in civil penalties against financial institutions large and small. Bank of America, Capital One, Citigroup, and JPMorgan Chase have all felt the CFPB’s sting, for such offenses as charging unlawful fees or, in the case of Wells Fargo, trying to jack up sales by opening millions of phony accounts in the names of unwitting customers.

None of this has made Cordray popular with Republicans. “Under Mr. Cordray’s leadership, the CFPB has acted unlawfully, routinely denied market participants due process, and abused its powers,” House Financial Services Committee Chairman Jeb Hensarling of Texas said during a hearing in April. “For all the harm inflicted upon consumers, Richard Cordray should be dismissed by the president.”

Hensarling was staking his position in a controversy over whether Trump can remove Cordray at will. By statute, the CFPB director can be ousted before the end of his five-year term only “for cause.” A 2014 enforcement case against a New Jersey mortgage company that’s now pending before the federal appeals court in Washington raises the question of whether the head of the CFPB ought to serve at the pleasure of the president just as cabinet secretaries do. Trump, for all his pugnaciousness, so far has chosen not to take up congressional Republicans’ invitation to try to fire Cordray.

That has left the CFPB director free to follow through with the arbitration rule, which has been more than two years in the making. Banks and other financial firms routinely include language in consumer contracts that blocks individuals from banding together to file class-action lawsuits. These fine-print provisions funnel disputes over credit cards, checking accounts, payday loans, and the like into private arbitration. Broadly speaking, arbitration proceedings move more quickly and aren’t as costly as conventional litigation. Mandatory arbitration arguably deters frivolous suits, but it doesn’t afford consumers many of the rights associated with lawsuits. Not being able to pool resources and lump together claims in a class action makes it difficult for consumers to seek compensation when individual damages are relatively small. Few plaintiffs’ lawyers are going to take a case seeking recovery of an improperly assessed $30 credit card late fee. 

In a July 10 statement announcing the rule, Cordray said that mandatory arbitration clauses “allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up.” When the rule takes effect next year, he continued, it “will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.” (Through a spokesman, Cordray declined to comment for this article.)

Republicans reacted swiftly. “The CFPB has gone rogue again, abusing its power in a particularly harmful way,” said Senator Tom Cotton of Arkansas, adding that the arbitration rule treats consumers “like helpless children, incapable of making business decisions in their own best interests.” A few days before the announcement of the rule, Hensarling reportedly threatened Cordray with contempt proceedings for allegedly not responding to a committee subpoena on the topic.

The GOP is already moving to overturn the arbitration rule by means of the Congressional Review Act. Enacted in 1996 and used only once prior to the Trump presidency, the act allows lawmakers to roll back a newly issued regulation within 60 legislative days from the time they formally receive the rule. Since Trump took office, it has become a potent weapon: Republicans have used it to reverse 14 Obama administration rules, including ones curbing coal-mining pollution and limiting when the mentally ill can purchase firearms. 

Cotton is working with Mike Crapo of Idaho, chairman of the Senate Banking Committee, to get the process moving for the CFPB rule, aides to the senators confirmed via email. There’s little doubt that Trump would sign a Congressional Review Act resolution killing it. And even if lawmakers don’t meet the 60-day deadline—perhaps too busy with expected debates over the federal budget and tax reform—another Trump-appointed banking regulator has suggested a method by which the plan could be killed without congressional action. Keith Noreika, the Acting Comptroller of the Currency, has said the Trump administration could unilaterally strike it down because it potentially threatens “the safety and soundness” of lenders. The same Dodd-Frank law that created the CFPB gives the Financial Stability Oversight Council—a panel of regulators headed by the Treasury secretary—power to set aside any CFPB rule that endangers the stability of the wider financial system. 

In a letter to Noreika dated July 12, Cordray scoffed at the notion. “At no time during this process did anyone from the [Office of the Comptroller of the Currency] express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system,” Cordray wrote. “Nor did you express any such concerns when we have met or spoken.”

Unfortunately for Cordray, he doesn’t have much room to maneuver in defending the arbitration rule. Depending on how the D.C. appeals court case comes out, he could even be sent packing before July 2018. However much time he has left, though, he’s made it clear he’ll draw as much attention as possible to attempts to wipe out a policy he believes will benefit consumers. 


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