Could the CFPB Change the Rules on Arbitration Clauses?

Of the 87 studies required by the Dodd Frank Act, one may get a bump up the priority list thanks to the recent U.S. Supreme Court decision in CompuCredit v. Greenwood, which upheld the rights of companies to include mandatory arbitration clauses in their user agreements. Several consumer groups disagreed with the court’s ruling and are calling on the new Consumer Financial Protection Bureau (CFPB) to get involved sooner rather than later. Section 1028 of Dodd Frank directs the CFPB to conduct a study and report to Congress on restricting mandatory pre-dispute arbitration, however, Congress set no deadline for completing the study. Once the CFPB does complete the study, the bureau has the authority to “prohibit or impose conditions or limitations” (via regulation) on arbitration agreements. The bureau’s rules must be consistent with the study.

The National Consumer Law Center (NCLC) recently issued a release protesting the court’s decision and pressing the CFPB to get started on the study. “The Supreme Court decision makes it all the more urgent for the Consumer Financial Protection Bureau to stop companies from using forced arbitration clauses to hide from the law,” said the group’s managing attorney Lauren Saunders. Saunders added, “Forced arbitration puts a thumb on the scales of justice in favor of predatory lenders...”

There are also bills in Congress that would amend the Federal Arbitration Act so that pre-dispute arbitration agreements would be invalid and unenforceable if they concern disputes related to employment, consumers, or civil rights. The Arbitration Fairness Act of 2011 (S. 987), sponsored by Sen. Al Franken (D-MN), asserts that mandatory arbitration clauses were “intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power,” not consumers. Rep. Hank Johnson (D-GA) is sponsoring companion legislation (HR 1873) in the House. Both bills are sitting in their respective judiciary committees and not expected to move any time soon in this contentious election year. FRW is watching the CFPB for the next move.


Cordray Controversy Continues

Following President Obama’s January 4th announcement that he would install former Ohio Attorney General Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB) using a recess appointment, a hailstorm of controversy has ensued, as lawyers, legislators and industry question the legitimacy of the move – and look for ways to undermine it.


Following the appointment, the Office of Legal Counsel stated that Congress can only prevent the president from making such appointments “by remaining continuously in session and available to receive and act on nominations,” not by holding pro forma sessions.

Senate Republicans, led by Sen. Chuck Grassley, Ranking Member of the Senate Judiciary Committee, accused the president of ignoring more than 90 years of legal precedent in making the recess appointments while the Senate remained in pro forma session. “The Justice Department and the White House owe it to the American people to provide a clear understanding of the process that transpired and the rationale it used to circumvent the checks and balances promised by the Constitution,” Grassley said. “Overturning 90 years of historical precedent is a major shift in policy that should not be done in a legal opinion made behind closed doors hidden from public scrutiny.” The letter was signed by Senate Judiciary Committee members Grassley, Sen. Orrin Hatch (R-UT), Sen. Jon Kyl (R-AZ), Sen. Jeff Sessions (R-AL), Sen. Lindsey Graham (R-SC), Sen. John Cornyn (R-TX), Sen. Mike Lee (R-UT), and Sen. Tom Coburn (R-OK).

On January 12, the Department of Justice issued a memo arguing that pro forma sessions held every third day in the Senate do not constitute a functioning body that can render advice and consent on the president’s nominees. It said the president acted consistently under the law by making the appointments. “Although the Senate will have held pro forma sessions regularly from January 3 to January 23, in our judgment, those sessions do not interrupt the intrasession recess in a manner that would preclude the president from determining that the Senate remains unavailable throughout to ‘receive communications from the president or participate as a body in making appointments,’” Virginia Seitz, assistant attorney general for the Office of Legal Counsel, wrote in the memo dated Jan. 6.


On the legislative front, there are two issues: the legislation that created Dodd-Frank, and the countless bills that will soon be introduced in response to the president’s recess appointment.

The conventional wisdom in both industry and government circles has been that the CFPB’s authority will be limited until it has a director, and that once it has a director, it will assume its full powers. Not quite. As Dodd-Frank was drafted, Section 1066 reserves many of the bureau’s powers for the Secretary of the Treasury “until the Director of the Bureau is confirmed by the Senate.” As Cordray was appointed through a recess appointment, rather than the Senate confirmation process, he will still have certain constraints on his authority. Specifically, the section transfers consumer financial protection functions of several other federal agencies to the CFPB Director.

In the absence of a Senate-confirmed director, those powers, which include the authority to regulate non-banks, should, according to statute, remain with the Secretary of the Treasury. Despite this, the CFPB has announced that it has launched its non-bank supervision program. Should that supervision become enforcement, it remains to be seen whether enforcement actions could withstand a court challenge.

Where the current legislation has raised questions, two freshman House Republicans are making moves to answer them.

On January 10, Rep. Diane Black (R-TN) introduced a House resolution “Disapproving of the President's appointment of four officers or employees of the United States during a period when no recess of the Congress for a period of more than three days was authorized by concurrent resolution and expressing the sense of the House of Representatives that those appointments were made in violation of the Constitution.” The resolution has 70 Republican co-sponsors.

On January 13, Rep. Jeff Landry (R-LA) introduced the Executive Appointment Reform Act (EARA), which would eliminate loopholes in the U.S. Code that allow for the payment of certain recess appointed individuals and also place limitations on an appointee’s ability to provide voluntary or gratuitous service. Additionally, the legislation would prevent all regulations hailing from the CFPB from becoming final until the director has been confirmed by the Senate. The bill has 22 Republican co-sponsors.


While few expected industry to enter the fray, a few major players have spoken out. 
Citigroup said that it does not view the move as a recess appointment and said it expects a court challenge. The U.S. Chamber of Commerce, a vocal critic of the bureau, has not ruled out a lawsuit, but said Friday, “We are not going to sue today.”

Cordray has said that he is working closely with industry leaders and lobbyists to ensure that their concerns are heard. “What I want to say to business is: They should embrace the bureau,” he said. “Not only are we going to protect consumers, but we are going to support the honest and responsible businesses in the financial marketplace” who were undercut by companies that did not “adhere to the same standards.”

The White House has held firm that the move was constitutional. “The Senate has effectively been in recess for weeks, and is expected to remain in recess for weeks,” White House spokesman Eric Schultz said in a statement. “Gimmicks do not override the president’s constitutional authority to make appointments to keep the government running,” he said.

Despite Republican Objections, Obama Installs Cordray as CFPB Director

President Obama announced this afternoon that he will install Former Ohio Attorney General Richard as director of the Consumer Financial Protection Bureau by “recess appointment.” The recess appointment comes despite the fact that the Senate is not officially in recess. The appointment will almost certainly be challenged in court.

Speaking in Shaker Heights, Ohio, the president said “Today I’m appointing Richard as America’s consumer watchdog. That means he’ll be in charge of one thing: looking out for the best interests of American consumers. His job will be to protect families like yours from the abuses of the financial industry.” The president went on to criticize Senate Republicans for blocking Cordray’s confirmation. “The only reason Republicans in the Senate have blocked Richard is because they don’t agree with the law setting up the consumer watchdog. They want to weaken it. Well that makes no sense at all.”

Now that the bureau has a director, it will assume its full authority under Dodd-Frank, which includes oversight authority over non-bank financial institutions. In the five-and-a-half months since the bureau opened its doors, mortgage servicers, debt collectors, and payday lenders have been outside of its purview. Now, these and other non-banks will likely be subject to regulatory and enforcement actions by the CFPB.

While many Democrats are claiming victory, all signs suggest that the battle is just beginning for Cordray. Many Republicans are already threatening court challenges, and Rep. Patrick McHenry, Chairman of the House Financial Services Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs wrote to Cordray today, requesting that he testify before the Subcommittee on January 24th.

This will not be the first time a presidential recess appointment has ended up in a courtroom. In 1921, the attorney general, at the request of the president, held that recess appointments could be made during an almost month-long recess, but noted that recess appointments during short recesses are unconstitutional finding that “ the term ‘recess’ must be given a ‘practical construction.’”

According to a report released by the Congressional Research Service last month, no recess appointments have been made in recent history during recesses lasting fewer than 10 days. During the Clinton Administration, the Department of Justice argued that any recess longer than three days meets the Constitutional standard for recess appointments. The DOJ did not claim that a recess appointment made in a recess of three days or less is unconstitutional, rather, only that it would present a “closer question.” It remains to be seen who will bring the suit, though there are undoubtedly a number of third parties that have a vested interest in the issues.

Senate Democrats were vocal opponents of recess appointments during the George W. Bush Administration. When President Bush recess appointed John Bolton as Ambassador to the United Nations, then-Senator Barack Obama (D-IL) said that a recess appointment was “the wrong thing to do,” and added that a recess appointee is “damaged goods… somebody who couldn't get through a nomination in the Senate. And I think that that means that we will have less credibility...” Also during the Bush Administration, Senate Majority Leader Harry Reid called recess appointments “mischievous” and “an end run around the Senate and the Constitution.” Now that the tables have turned, Senate Republicans have several of their Democrat colleagues on the record making similar comments. 

The Senate failed to confirm Cordray on December 8, 2011, when it voted 53-45 to end the filibuster and proceed with the confirmation, falling short of the 60 votes needed to proceed. All but two Republicans voted to sustain the filibuster. Sen. Scott Brown (R-MA) is the only Republican Senator to publicly support Cordray, likely because he finds himself in a tight Senate race against CFPB architect Elizabeth Warren. Sen. Olympia Snowe (R-ME), who was one of only three Republicans to vote for Dodd-Frank, voted “present.”

Forty-Five Republican Senators signed onto a letter vowing to oppose any nominee for director until the CFPB is restructured. Specific reforms suggested in the letter were: (1) the establishment of a board of directors; (2) the requirement that the CFPB submit a budget request and go through the appropriations process just like the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission; and (3) the oversight of CFPB regulations by Federal bank regulators to ensure that such regulations do not needlessly cause bank failures.

Members on both sides of the aisle issued strongly-worded statements on the president’s move:

Senate Minority Leader Mitch McConnell (R-KY), who has led the Republican effort to block the confirmation, blasted President Obama’s decision, accusing him of “arrogantly circumventing the American people with an unprecedented ‘recess appointment’ of an unaccountable czar.” McConnell described the historical precedent of limiting recess appointments to recesses lasting ten days or more and said “breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

Senate Majority Leader Harry Reid (D-NV) said, “I support President Obama’s decision to make sure that in these tough economic times, middle-class families in Nevada and across the country will have the advocate they deserve to fight on their behalf against the reckless practices that denied so many their economic security… I hope that moving forward, Republicans will work with Democrats to address the concerns of middle-class Americans, instead of turning every issue into a partisan fight.”

House Speaker John Boehner (R-OH) issued a statement calling the move “an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department," Boehner said. “This action goes beyond the President’s authority, and I expect the courts will find the appointment to be illegitimate.”

Senate Banking Committee Chairman Tim Johnson (D-SD) said, “With Richard Cordray leading the Consumer Financial Protection Bureau, Americans will finally get the consumer protections they deserve. Mr. Cordray is eminently qualified for the job, as even my Senate Republican colleagues have acknowledged…It’s disappointing that Senate Republicans denied him an up-or-down vote, especially when it’s clear he had the support of a majority of the Senate.”

House Financial Services Committee Chairman Spencer Bachus (R-AL) said, “The President’s unprecedented decision to attempt to circumvent the Constitution and ignore the law he himself signed is the clearest indication yet that he has abandoned any effort to work in a bipartisan manner to strengthen accountability and oversight of this new government bureaucracy… In doing so, President Obama has delegitimized the CFPB and has opened the agency up to legitimate legal challenges that will cripple it for years. The greatest threat to our economy right now is uncertainty, and the President just guaranteed there will be even more uncertainty.”

Now What? - Senate Fails to Stop Cordray Filibuster

This morning, Senate Republicans made good on their promise to block former Ohio Attorney General Richard Cordray’s nomination as director of the Consumer Financial Protection Bureau.

The Senate voted 53-45 to proceed with the confirmation, falling short of the 60 votes needed to prevent a filibuster. All but two Republicans voted to sustain the filibuster. Sen. Scott Brown (R-MA) is the only Republican Senator to publicly support Cordray, likely because he finds himself in a tight Senate race against CFPB architect Elizabeth Warren. Sen. Olympia Snowe (R-ME), who was one of only three Republicans to vote for Dodd-Frank, voted present.

So what comes next? The general consensus is: Nothing.

The House has taken steps over the last several months to prevent a recess appointment, and will likely continue to do so. The Obama Administration has not shown any sign of willingness to back down and change the bureau’s structure, nor is nominating another potential director likely to do any good. Republicans have made it clear that their hesitation has nothing to do with any individual candidate (though many believe Cordray was chosen in part because he is far less controversial than Warren); and no Senator on either side is likely to flip-flop on this issue going into an election year. In all likelihood, both sides will use it as a talking point throughout the 2012 election, with Democrats blaming Republicans for handicapping an agency aimed at protecting consumers and Republicans blaming Democrats for creating a regulatory agency without sufficient mechanisms to limit the director’s authority.

The Obama Administration has fought to rally support around Cordray in recent months. The CFPB has been operating without a director since it opened its doors on July 21, 2011, meaning that its authority is limited to banks and does not extend to non-banking financial institutions, including debt collectors, payday lenders and mortgage servicers. In May, 44 Republicans Senators sent a letter to President Obama vowing to block any nominee for director until the Bureau is restructured, namely by replacing its single director with a 5-person board. Senate Republican leaders have said that they are still waiting for a response to their letter.

Busy Without a Boss - CFPB Gets Cranking

The Consumer Financial Protection Bureau (CFPB) may not have a director, but that hasn’t stopped if from getting straight to work. Although its powers are limited until the Senate confirms a director, the CFPB recently kicked off two major efforts that prove it isn’t letting Senate Republicans slow it down.

Today, the CFPB and the Department of Education announced that they are working together to simplify financial aid offers for college students. The “thought starter,” (CFPB officials were careful to emphasize that this was not a formal proposal), would require all financial aid providers to supply students with a one-page “shopping sheet” containing basic information including the total cost of attendance, total debt at graduation and monthly debt payments thereafter. It also requires clear distinctions between scholarships, which do not have to be repaid, and loans. The new disclosure aims to make the costs and risks of student loans easier to understand and comes as part of the CFPB’s broader “Know Before You Owe” initiative; aimed at simplifying the paperwork borrowers receive when applying for loans.

Earlier this month, the CFPB issued the “CFPB Supervision and Examination Manual,” describing the supervision and examination process, outlining specific examination procedures and presenting templates for documentation. The CFPB has stated that these procedures will be used to examine “supervised entities.” This perhaps purposely vague characterization may reflect the bureau’s hope that it will soon enjoy its full authority, rather than being limited to bank oversight. In this vein, the CFPB included examination procedures related to compliance with a number of statutes, which, while applicable to banks, could have broad applications to a number of non-bank institutions.

Meanwhile, the CFPB awaits a director. The Obama Administration has pulled out all the stops to rally support around former Ohio Attorney General Richard Cordray, who was nominated by President Obama on July 17, 2011 and approved by the Senate Banking Committee on October 6, 2011. The Obama 2012 campaign website includes a tool enabling supporters to send one of four prewritten messages to the 44 GOP Senators who have vowed to block Cordray’s confirmation until the CFPB is restructured. Last week, The National Association of Attorneys General sent a letter to Senate leaders supporting Cordray’s nomination. Thirty-seven state attorneys general signed the letter, which they said was intended to put pressure on Senate Republicans to explain “why they aren’t acting.”

Ranking Member of the Senate Banking Committee Sen. Richard Shelby (R-AL) countered saying that he and his Republican colleagues sent the president a letter in May and never received a response. Said Shelby, “We haven’t heard from the president. Maybe he’s off campaigning,”

Senate Banking Committee Approves Cordray Nomination

The Senate Committee on Banking, Housing and Urban Development voted this morning to confirm former Ohio Attorney General Richard Cordray as director of the Consumer Financial Protection Bureau. The committee approved the nomination by a party-line vote of 12 to 10, with all Republican members voting against, as they have repeatedly vowed to do until the CFPB is restructured. The nomination must now come to a vote before the full Senate to complete Mr. Cordray’s confirmation. However, Minority Leader Mitch McConnell has united the Republican caucus to block the nomination (until the bureau is restructured), and it is unclear when the Senate will actually take up the nomination. The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act and officially opened its doors on July 21, 2011, but its powers are limited until it has a Senate-confirmed director.

The Senate Committee also unanimously approved the nominations of Alan B. Krueger to be a Member of the Council of Economic Advisers; David A. Montoya to be Inspector General, U.S. Department of Housing and Urban Development; Cyrus Amir-Mokri to be an Assistant Secretary of the Treasury, U.S. Department of the Treasury; Patricia M. Loui to be a Member of the Board of Directors, Export-Import Bank of the United States; and Larry W. Walther to be a Member of the Board of Directors, Export-Import Bank of the United States.

Ms. Warren Takes On Washington

Amid rumors that Consumer Financial Protection Bureau creator Elizabeth Warren is planning to take on one Senate Republican, it appears she’s decided to go to battle against all of them.

The former Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau published an op-ed yesterday where she announced that she has started a petition calling on Senate Republicans to confirm Former Ohio Attorney General Richard Cordray as director of the CFPB and to protect the interests of middle class families, rather than those of big banks.

Warren has certainly amped up her rhetoric since leaving Washington this summer and returning to Harvard Law School. The once-reserved Warren called Republican’s behavior “outrageous” and said she was “proud to have been part of the David vs. Goliath effort that led to the passage of this new agency.”

“I've made my life's work fighting for middle class families and pushing back against special interests. I know what it means to live one pink slip or one health crisis away from economic disaster, because I did. That's why I'm working so hard to change things,” Warren wrote.

Her petition, “Tell Senate Republicans: Let the CFPB Do Its Work!” states, “The big banks and their army of lobbyists couldn't stop the creation of a new [CFPB], so now they are trying to undermine its work, enlisting their Republicans friends on the Senate Banking Committee. It's outrageous — and we've got to hold them accountable."

Forty-four Senate Republicans signed a letter earlier this year, vowing to block any nominee for CFPB director until structural changes are made to the bureau.

The petition is posted on the “Elizabeth Warren for Massachusetts” website, the official website of her exploratory committee as she considers running against Massachusetts Republican Sen. Scott Brown in 2012. Sen. Brown was one of three Republicans not to sign the letter and has remained largely silent on the issue, despite being one of the swing votes to pass the Dodd-Frank Consumer Protection and Financial Regulatory Reform Act, which created the bureau. Warren has yet to announce her candidacy, but key Massachusetts Democrats say the announcement is coming soon. Sen. Brown, who defeated Massachusetts Attorney General Martha Coakley in a special election following the late Sen. Ted Kennedy (D-MA)’s death, has been surprisingly popular in notoriously liberal Massachusetts, but recent polls suggest that Warren could give him a run for his money, polling only 9 points behind the incumbent this week.

Senate Republicans to Cordray: Nothing Personal

During yesterday’s Senate Banking Committee nomination hearing, Senators on both sides of the aisle assured Richard Cordray, the president’s nominee for director of the Consumer Financial Protection Bureau, that he is not the problem.

Tuesday’s nomination hearing stood in stark contrast to the hearings held in both the House and the Senate over the past year, where CFPB creator  and once-presumed director Elizabeth Warren faced harsh, often personal attacks from many House and Senate Republicans. Cordray, on the other hand, received nothing but compliments from committee members, who instead launched their criticisms at each other and/or the structure of the new bureau.

Democrats blasted Senate Republicans for stalling the confirmation process. Senate Banking Committee Chairman Tim Johnson (D-SD) touted the many checks imposed on the director’s authority, saying that Republican “claims that the CFPB is not accountable are little more than efforts to destroy this important agency.” He went on to accuse his GOP colleagues of “playing political games” and “holding Mr. Cordray’s nomination hostage.” His fellow Democrats echoed these criticisms, asking Cordray if he had heard a single member of the Senate question his qualifications to lead the CFPB (he had not) and blasting Republicans for trying to “re-legislate” a bill which was passed by the Congress with (albeit minimal) bipartisan support.

Republicans maintained their contention that the CFPB lacks sufficient checks and balances and reiterated their promise to block the confirmation until structural changes are made to the bureau. Ranking Member Richard Shelby (R-AL) said that the hearing was “quite premature” and criticized President Obama and Senate Democrats for “ignoring the reasonable reforms” Senate Republicans proposed earlier this year. Sen. Bob Corker (R-TN) said that he was “shocked” by how partisan the committee had become and by “how many mistruths were being spewed” by Democrats. Corker asserted that the CFPB clearly lacks meaningful accountability and cited as evidence the language in Dodd-Frank instructing that the director’s actions can only be overruled by the Financial Stability Oversight Council if those actions “undermine the stability of the U.S. Financial System.” Both Sen. Shelby and Sen. Corker apologized to Cordray about being “caught up in all of this,” but warned that the Republicans will not give in until the changes are made.

While the Democrats have the votes to advance the nomination out of committee, 44 Republicans, including Senate Minority Leader Mitch McConnell (R-KY), have vowed to block any nominee for director until the CFPB is restructured, and as of yet, neither side shows any signs of compromise.

CFPB, House Republicans Hit the Ground Running - In Opposite Directions

The Consumer Financial Protection Bureau (CFPB) officially opened its doors yesterday and wasted no time before assuming its duties. The bureau sent letters to the CEOs of the financial institutions that fall under its supervision and opened its new consumer complaint hotline. In the coming week, it is expected to issue three reports to Congress: one examining the differences between credit scores sold to consumers and scores used by lenders to make credit decisions; one recommending a strategy for maximizing transparency and disclosure of exchange rate information; and one outlining the recruitment, training, benefits and retention plans for CFPB staff. The CFPB will also issue several interim rules, outlining protocols ranging from record-keeping to investigation and enforcement.

The House celebrated Dodd-Frank’s birthday by voting to change the structure and oversight authority of the Consumer Financial Protection Bureau (CFPB). By a count of 241-173, the House voted to replace the CFPB director with a five-person board, making it more similar to the leadership structures of the other financial regulators. The bill also empowers the Financial Stability Oversight Council (FSOC) to overturn CFPB regulations with a simple majority vote. Under Dodd-Frank, the FSOC needs a two-thirds vote to overturn any CFPB rulings. The House bill also requires that the CFPB have a Senate-confirmed director before it takes on any of its authority, not simply its authority over non-banks, as the Act requires. Ten Democrats voted for the measure, and one Republican, Rep. Walter Jones (R-NC), voted against it.

Most Democrats say the House bill is yet another attempt to undermine the CFPB’s authority. The bill now heads to the Senate, where it is unlikely to garner sufficient Democratic support to pass.

Happy Birthday, Part II - Top Regulators Make Case for Funding Increases

The nation’s leading financial regulators took their battle for more implementation and enforcement funding to Capitol Hill Thursday. Their testimony was offered on the first anniversary of the signing of the Dodd-Frank Act.The witness panel at the Senate Banking Committee consisted of Rep. Barney Frank (D-MA), for whom the Act was named; Deputy Treasury Secretary Neal Wolin; Federal Reserve Chairman Ben Bernanke; Securities and Exchange Commission Chairman Mary Shapiro; Commodity Futures Trading Commission Chairman Gary Gensler; Federal Deposit Insurance Commission Acting Chairman Martin Gruenberg; and Acting Comptroller of the Currency John Walsh. Not represented was the agency whose funding is most controversial – the Consumer Financial Protection Bureau. The CFPB opened its doors for business today.

The witnesses met with the mixed response they must have expected . Senate Banking Committee Chairman Tim Johnson (D-SD) opened the hearing by applauding the regulators for their work over the past year and emphasized that “Congress must do its part” to actively oversee the implementation of Dodd-Frank in the years to come. Ranking Member Richard Shelby (R-AL), on the other hand, expressed his frustration with the law, saying that it “provides little comfort to millions of Americans who are facing harsh economic realities.” Sen. Shelby went on to say that when Dodd-Frank was being considered in the Senate the-Senator Chris Dodd (D-CT), for whom the bill is also named, assured him that there would be strong oversight and accountability in the regulatory agencies. Shelby said he regrets that that hasn’t been the case.

Each of the regulators devoted his or her testimony to justifying the regulatory delays and petitioning for increased funding from Congress. Gensler said that regulations have been delayed because “It is more important to get it right, than to work against the clock.” Shapiro argued that the regulators cannot possibly fulfill all of their new responsibilities without increased resources.

Regulatory agencies have taken a hit in House Republicans’ latest attacks on Dodd-Frank. The House Financial Services Appropriations bill slashed several regulators’ budgets to levels at or below their pre-Dodd-Frank budgets, when they had far fewer responsibilities. Frank criticized the cuts during his testimony, saying that Congress can’t argue that it can’t afford to fund regulatory agencies when it continues to spend billions of dollars in overseas conflicts. It should be noted, the Senate Banking Committee is not the venue to battle the funding cuts suggested by the House Appropriations Committee. The Senate Appropriations Committee will take up the spending plan for most of these agencies later this year.

Who is Richard Cordray? - Obama Nominates Consumer Protection Director

On Monday, July 18, 2011, President Barack Obama nominated former Ohio Attorney General Richard Cordray to be Director of the Consumer Financial Protection Bureau (CFPB).

Cordray, aged 52, graduated from Michigan State University’s James Madison College and went on to study Economics at the University of Oxford as a Marshall Scholar. He later attended the University of Chicago Law School, and in 1987, Cordray was a five-time champion and Tournament of Champions semifinalist on Jeopardy!

After graduating from law school, Cordray clerked for Associate Justices Byron R. White and Anthony M. Kennedy in the U.S. Supreme Court. He later served in the Ohio State House of Representatives. In 1992 Cordray ran for the U.S. House of Representatives but was defeated. In September 1993, he was named Ohio’s first Solicitor General. In late 1996, Cordray was a top contender for United States Attorney during President Bill Clinton’s second term but was not selected. In 1998, Cordray lost his bid for Ohio Attorney General and ran for U.S. Senate in 2000 but lost. Cordray served as Franklin County Treasurer from 2002-2007 and Ohio State Treasurer from 2007-2009. In 2009, he ran for Ohio Attorney General and served for 2 years but lost re-election in 2010.

In December 2010, Elizabeth Warren named Cordray to lead the enforcement arm of the CFPB. At the time, Cordray said the post gave him the opportunity to resume “...doing on a 50-state basis the things I cared most about as a state attorney general, with a more robust and a more comprehensive authority.”

Cordray has a history with many of the large banks he could end up regulating. As Attorney General, Cordray filed suit in 2009 against Bank of America, its directors and four executives, claiming that it concealed Merrill Lynch’s losses from shareholders during its acquisition of the company. In 2010, he reached a $9 million settlement with AIG in an antitrust case and he was also involved in suits against Moody’s and Standard and Poor’s.

Cordray was chosen over presumptive nominee Elizabeth Warren, who has come under fire from Republicans who oppose the bureau’s single-director leadership structure. Warren left Washington shortly after the President’s announcement and has returned to Massachusetts, where many believe she is contemplating a run for Senate against Sen. Scott Brown (R-MA) in 2012.

While Cordray has been largely out of the fray thus far, Senate Republicans have said that they will oppose any nominee for director until the bureau is restructured, and Republicans in both the House and Senate have taken steps in recent weeks to block President Obama from making any recess appointments. Responding to the nomination, Sen. Richard Shelby (R-AL), Ranking Member of the Senate Banking Committee, said: "Although this deadline has been known for nearly one year, President Obama waited until the last possible moment to act. For months he has ignored Republican concerns about the lack of accountability at the [consumer bureau] and its potential adverse effect on the economy. Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it. No accountability, no confirmation."

The CFPB is set to open its doors on Thursday, July 21, 2011, but until it has a Senate-confirmed director; its powers will be limited.

CFPB Seeks To Regulate Six Non-Banking Sectors

The Consumer Financial Protection Bureau (CFPB) could soon oversee 100,000 firms, bureau officials said last week. Elizabeth Warren and the CFPB leadership held a press call Thursday, outlining six areas that could soon be subject to CFPB oversight. The six areas are debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing and related activities; prepaid cards and debt relief services. The bureau is not permitted to begin regulating non-bank firms until a director is confirmed, which is not likely to happen before the July 21, 2011 Dodd-Frank implementation date when the bureau officially opens its doors.

While the Obama Administration said that the CFPB’s ability to oversee these non-bank product is key to reigning in the previously unregulated “shadow banking” industry, House Republicans continue their attacks on the bureau, and have vowed to go to any lengths necessary to block President Obama from naming Elizabeth Warren as the bureau’s director through a recess appointment. Rep. Patrick McHenry (R-NC) said he is concerned that the CFPB will have “virtually unchecked” power.

The CFPB is currently seeking comment on how it should supervise non-bank firms. The comment period will be open until mid-August, and the final regulations must be in place by July 21, 2012, according to the Dodd-Frank Consumer Protection and Wall Street Reform Act.

Senate GOP Continues to Raise the Volume on CFPB Reforms

On Thursday, all 10 Republican members of the Senate Banking, Housing and Urban Affairs Committee—led by Sen. Bob Corker (R-TN)—wrote a letter to committee chairman Tim Johnson (D-SD) urging him to “hold hearings and a mark-up as soon as reasonably possible on legislation to establish an accountable governance structure for the Bureau of Consumer Financial Protection.”

This latest action follows a May 2 letter signed by 44 Senate Republicans to President Obama that threatened to block any CFPB director nominee—regardless of party affiliation—unless appropriate accountability mechanisms for the CFPB are addressed by Congress. In both instances, Senate Republicans are calling for the adoption of three specific CFPB reforms, including:

  1. altering the CFPB’s leadership structure from that of a single director to a board of directors, similar to the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, or Securities and Exchange Commission (SEC);
  2. subjecting the CFPB to the congressional appropriations process; and
  3. providing prudential bank regulators with stronger tools to prevent CFPB regulations that may impact the safety-and-soundness of banks.

The tactic is clearly an attempt to force the hands of President Obama and Senate Democrats by using the confirmation process as a leverage point. Unless President Obama chooses to circumvent the Senate confirmation process through a recess appointment—a move deemed by many as politically controversial—he and Chairman Johnson will be forced to recognize many of the Senate GOP’s demands for CFPB reform. The House Financial Services Committee has already passed three bills that nearly mirror the Senate proposals.

Also in the House, senior House Financial Services Committee member Carolyn Maloney (D-NY) has circulated a “Dear Colleague” letter requesting that House members sign a letter to President Obama urging him to appoint Elizabeth Warren to the CFPB director position during one of the upcoming congressional recesses.

“Since Republican senators have said that no one is acceptable unless the law is weakened, we would urge you to nominate Professor Warren as the CFPB’s first director anyway,” says Maloney’s letter to President Obama.

CFPB Director or CFPB Commissioners? House Republicans Prefer the Latter

Coinciding with Elizabeth Warren’s inaugural testimony before Congress in her capacity as Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau (CFPB) on Wednesday, House Financial Services Committee Chairman Spencer Bachus (R-AL) revived a dormant proposal that would decentralize the leadership of what Bachus calls the “most powerful agency that’s ever been created in Washington.”

Joined by 26 GOP colleagues, Bachus introduced H.R.1121, the Responsible Consumer Financial Protection Regulations Act, legislation that would replace the position of CFPB Director with a five-member Commission consisting of members that are nominated by the President and confirmed by the Senate. In addition, H.R. 1121 requires the commission to be comprised of no more than three members of the same political party—a bipartisan structure similar to that of the FTC, FDIC and SEC. According to Bachus, Dodd-Frank consolidates too much authority in the hands of a single CFPB director.

The commission structure—an idea first proposed in Congress by former Rep. Walt Minnick (D-ID) during the initial stages of the Dodd-Frank debate in 2009—has long been under discussion on Capitol Hill and was ultimately included within the financial reform legislation that first passed the House in December of 2009. (The commission language was ultimately scrapped during the House-Senate conference negotiations.)

Although no Democrats have signed onto H.R. 1121 thus far, House Republicans view the commission proposal as perhaps the most palatable CFPB reform option for Congressional Democrats, who have remained unified in resisting recent GOP efforts to slash the agency’s budget.

When pressed by Rep. Sean Duffy (R-WI) during a House Financial Services Subcommittee hearing yesterday, Ms. Warren testified that Congress made the “right decision” in choosing a consolidated directorship in favor of a five-member board. Warren cited the OCC and OTS as examples of single director agencies that Congress centralized in order to create “a more efficient operation.”

Responding to Republican arguments during the hearing that the CFPB possesses unchecked and unprecedented financial regulatory authority, Warren reminded lawmakers that CFPB rules can be nullified by the newly-created Financial Stability Oversight Council (FSOC) if the council determines that such rules may affect the safety and soundness of a particular financial institution. “That is not true for any other agency,” said Warren.

In addition to H.R. 1121, a handful of GOP freshmen in the House have also introduced legislation to amend or repeal certain sections of Dodd-Frank as part of a broader GOP effort to tie the financial regulatory environment to U.S. job creation and economic competitiveness. The bills include the following:

  • Chief Executive Officer (CEO) Compensation Disclosures—Rep. Nan Hayworth (R-NY) introduced H.R.1062, the Burdensome Data Collection Relief Act, which would repeal Section 953(b) of the Dodd-Frank Act that requires all public companies to disclose the ratio of the median annual “total compensation” of all company employees to the annual “total compensation” of the CEO within all of the company’s SEC filings.
  • SEC Registration—Rep. Robert Hurt (R-VA) introduced H.R.1082, the Small Business Capital Access and Job Preservation Act, which would exempt advisors to Private Equity Funds from new SEC registration and reporting requirements under Dodd-Frank.
  • Public Offerings—Rep. David Schweikert (R-AZ) introduced H.R. 1070, the Small Company Capital Formation Act of 2011, which will increase the SEC’s Regulation A exemption for the public offerings of small companies from $5 million to $50 million. In addition, the bill requires the SEC to revisit the exemption ceiling every two years.

These bills were reviewed on Wednesday during a House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises—chaired by Rep. Scott Garrett (R-NJ)—that focused on “job creation, capital formation and market certainty.” The subcommittee also reviewed two yet-to-be introduced bills by freshman Reps. Michael Grimm (R-NY) and Steve Stivers (R-OH). Grimm’s proposal would amend the definitions of ‘‘major swap participant’’ and ‘‘major security based swap participant,’’ while the Stivers bill would repeal section 939G of Dodd Frank that related to the legal liabilities of credit rating agencies.

Airing of Grievances: Banking Association Heads Continue to Blast Proposed Rule On Interchange Fees

Entitled "The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses,” Wednesday afternoon’s hearing before the House Financial Services Subcommittee on Financial Institutions & Consumer Credit was intended to provide a venue for banking industry leaders to decry the oft-maligned Consumer Financial Protection Bureau (CFPB) and other potential regulatory hurdles stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173).

Interchange fees, however, appeared to be all banking industry leaders wanted to talk about—providing the latest signal that the Congressional debate over the controversial “Durbin Amendment” is far from over.

In 2010, the National Association of Federal Credit Unions (NAFCU), the Independent Community Bankers of America (ICBA) and other influential banking industry groups waged a full-scale—albeit unsuccessful—lobbying effort to strip from the Dodd-Frank legislation an amendment offered by Sen. Richard Durbin (D-IL) that would require the Federal Reserve to enact rules to limit the interchange fees paid by retailers and merchants for the acceptance of debit card payments. Although the Durbin amendment attempted to limit the exposure to credit unions and community banks through the inclusion of an exemption for banks with assets of $10 billion or less, witnesses at Tuesday’s hearing say a proposed rule issued by the Fed in December limiting fees from the current 44-cent average to 7-12 cents per transaction would have a “potentially devastating” effect on small financial institutions and consumers.

NAFCU representative John P. Buckley Jr., President and CEO of Gerber Federal Credit Union in Michigan, joined other witnesses in repeating comments made by Fed Chairman Ben Bernanke during a Senate hearing in February that despite the exemption, the new interchange fee limits may force small banks to lower such fees charged to merchants and retailers in order to compete with large banks that will face fee restrictions under the Fed’s rule.

"It is possible that exemption may not be effective in the marketplace," Bernanke told Senate lawmakers last month. At the same hearing, Federal Deposit Insurance Chairwoman Sheila Bair echoed Bernanke’s concerns, stating that she is “skeptical” that small banks will be shielded from the rule.

According to Buckley, President and CEO of Gerber Federal Credit Union in Michigan, the proposed rule is projected to cost Gerber FCU $210,000 per year in lost revenues. For the broader industry, Credit Union National Association President O. William Cheney estimated an annual effect of $1.5 billion in lost revenues.

The Financial Institutions & Consumer Credit subcommittee dedicated an entire hearing on February 17 to the Durbin amendment, in which Fed Governor Sarah Bloom Raskin testified. Raskin acknowledged the potential unintended consequences of the proposed rule and suggested that the final rule—slated for April—may be modified.

If last year’s Dodd-Frank debate proved anything, it’s that the credit union and community banking lobbies have a broad and influential reach in all 50 states and all 435 congressional districts. This issue should receive continued bipartisan attention in the days ahead.

In the Shadow of a Shutdown, the Beat Goes On

Resolving a Federal budget impasse that threatens the first government-wide shutdown since 1995 will undoubtedly be Congress’s top priority when it returns on Monday following a week-long President’s Day recess. But who says lawmakers can’t walk and chew gum at the same time? Below is a preview of next week’s critical financial services hearings on Capitol Hill, as both chambers continue to oversee the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and discuss various proposals for reforming the housing finance sector.

GSE Reform

Treasury Secretary Timothy Geithner will make his first appearance of the year before the full House Financial Services Committee (HFSC) on Tuesday to discuss the Obama Administration’s long-awaited report to Congress—unveiled on February 11—that details both short-term administration initiatives and long-term options for reforming Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. House Republicans have targeted GSE reform as a key agenda item for the 112th Congress, as the HFSC has already conducted three separate hearings related to housing finance this Congress.

In addition, HFSC Chairman Spencer Bachus (R-AL) announced yesterday that his committee will be marking up four separate bills that will seek to terminate Obama administration foreclosure and housing assistance programs that Bachus argues are “doing more harm than good for struggling homeowners.” The Home Affordable Modification Program (HAMP), the Neighborhood Stabilization Program, the FHA Refinance Program, and the Emergency Homeowner Relief Program would all be terminated under the GOP proposals.

Republicans have been particularly critical of HAMP, a program spearheaded in March of 2009 by the Obama administration to assist struggling homeowners avoid foreclosure by providing federal incentives for borrowers, servicers and investors to modify delinquent home loans. HAMP has led to over 500,000 permanently modified home loans, yet has fallen far short of the Obama administration’s initial goal of 3 to 4 million modifications.

Consumer Financial Protection Bureau (CFPB)

On Wednesday, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit – chaired by West Virginia Republican Shelley Moore-Capito – will conduct a hearing entitled "The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses.” The CFPB’s potential impact on U.S. job creation and commercial credit access are likely to dominate the discussion.

The hearing follows the House’s passage on February 19 of a Continuing Resolution (CR) – a bill to fund government operations through September 30, 2011—that would cap the Federal Reserve’s funding for the CFPB at $80 million, representing a steep cut from the $134 million the White House requested for the agency’s FY11 start-up costs. Under the Dodd-Frank legislation, once the CFPB is officially established in July 2011, its funding will derive from the Federal Reserve’s operating expenses budget and could be as high as $500 million in FY12.

During the House budget debate, Chairwoman of the Appropriations Subcommittee on Financial Services Jo Ann Emerson (R-MO) defended the hefty cuts. "Providing half a billion dollars a year without any congressional oversight to the bureau is, I believe, a very irresponsible abdication of a constitutional check and balance," said Emerson.


Newly-minted Chairwoman of the Senate Agriculture, Nutrition and Forestry Committee, Debbie Stabenow (D-MI) will hold a hearing on Thursday to review agency implementation of Dodd-Frank’s provisions related to the regulation of over-the-counter swaps markets.

The hearing will primarily focus on Dodd-Frank’s imposition of enhanced regulatory requirements on the derivative market and its participants, including a requirement for stringent margin and capital requirements for all derivative market participants. During a HFSC oversight hearing on February 15, Commodity Futures Trading Commission Chairman Gary Gensler attempted to alleviate lawmaker and industry concerns that the new derivatives regulations will negatively impact so-called commercial “end-users” – those businesses ranging from farm equipment manufacturers to breweries -- who seek to hedge against interest rates and raw material prices through derivatives contracts. Gensler testified that the CFTC, which has been given broad leeway in determining the businesses who will be exempted under the law, does not intend to target legitimate commercial end-users.

Stay tuned for hearing updates next week.

The CFPB Versus Congressional Appropriators: Round One

In prepared remarks before the 75th anniversary celebration of the Consumers Union on Tuesday, the Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB)—Elizabeth Warren— took the opportunity to counter ongoing attacks levied on the new agency from Congressional Republicans who, as Warren says, “are still trying to chip away at its independence.”

Warren’s comments yesterday specifically referenced the escalating efforts by House Republicans’ to strip the CFPB of its independent funding through the Federal Reserve, moves that appear to be the GOP’s most potent tools at increasing Congressional oversight of the CFPB and curbing its wide-ranging regulatory authority over both banks and non-banks.

As signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173) contains provisions intended to insulate the CFPB politically by funding it outside of the Congressionally-approved discretionary spending process. Instead, the CFPB, once fully established on July 21, 2011, will possess a dedicated funding source through a set percentage of the Fed’s operating budget – resulting in an annual budget as high as $450-$500 million, or nearly double the Federal Trade Commission’s (FTC) budget for Fiscal Year 2010.

Last week, Rep. Randy Neugebauer (R-TX), Chairman of the Financial Services Subcommittee on Oversight and Investigations and one of the most ardent CFPB critics on Capitol Hill, introduced H.R.557, the Consumer Financial Protection Oversight Act of 2011, which would remove the CFPB from the Fed and transfer it over to the U.S. Treasury Department. According to Neugebauer, “Given the significant and perhaps over-regulating powers the CFPB has been given by the Obama Administration, Congress must have a say on the appropriation of taxpayer money funding this agency’s operation.”

As shorter-term strategy, House Republicans have also included a provision within H.R.1, the Full Year Continuing Appropriations Act —a must-pass piece of legislation that will fund government operations through FY11—that would limit the initial funding for the CFPB to $80 million, which represents a steep cut from the $134 million the White House requested for the agency’s start-up costs.

However, Warren warned during her Consumer Union remarks that such efforts to weaken the CFPB’s independence would diminish the agency’s ability to perform its regulatory functions.

“Politicizing the funding of bank supervision would be a dangerous precedent, and it would deprive the CFPB of the predictable funding it will need to examine large and powerful banks consistently and to provide a level playing field with their nonbank competitors,” said Warren. “While the banking regulators charged with preserving the safety and soundness of financial institutions and ensuring consumer protection compliance by smaller banks would continue to receive independent funding, the agency in the financial regulatory system with lead responsibility for protecting consumers would face a different set of rules - rules that threaten its independence.”

Although the CFPB funding debate is currently drawn on strictly partisan lines, the issue touches on a larger debate surrounding Congress’s oversight role over federal agencies and its inherent powers over the federal purse. The GOP’s position may appeal to moderate Democratic appropriators –particularly those on the Senate side – who could support a larger Congressional role in the CFPB budget process in order to preserve Congress’s spending prerogatives.

It’s still too early to tell where this debate will go – but one thing is certain: Congressional Republicans are on the attack, and Elizabeth Warren and the Obama administration will be forced into playing defense in the critical days ahead for the CFPB.

HR 557 - Consumer Financial Protection Bureau Funding (PDF)

Meet the Next Chairman

At a closed-door House Republican conference meeting today, nine-term Congressman Spencer Bachus (R-AL) was selected by his colleagues to chair the House Financial Services Committee when Republicans assume power come January.

In the 112th Congress, Bachus will likely continue his conservative voting record and fulfill his stated intentions to make GSE reform and the reexamination of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) —particularly the provisions related to the newly-established Consumer Financial Protection Bureau (CFPB) and derivatives regulation—his top priorities.

Bachus has reserved some of his most pointed criticism for the CFPB, which he fiercely opposed during the congressional Dodd-Frank debate, and has often referred to as the “Credit Allocation Bureau.” In late November, Bachus joined fellow committee colleague, Rep. Judy Biggert (R-IL), in sending letters to the inspector generals of both the Treasury Department and the Federal Reserve, directing them to conduct an investigation and issue reports to Congress regarding the work currently being done by Treasury, the Fed and White House special advisor, Elizabeth Warren, to establish the CFPB. The letters cite "a clear absence of accountability and transparency" regarding the CFPB’s implementation and thus requires "rigorous" administration oversight. Bachus’s recent letters are part of a broader effort to “reinvigorate the committee’s oversight role,” in the next Congress. Bachus is expected to join with fellow Republican Darrell Issa (CA), the incoming chairman of the House Oversight and Government Reform Committee, to quickly initiate Dodd-Frank oversight hearings in 2011.

Although Bachus has served as the committee’s top Republican since beating out Howard Baker (R-LA) in 2006 and was considered the leading contender for the chairmanship, he was challenged this week by senior committee member Ed Royce (R-CA). However, Bachus was assisted by significant support from his senior Republican colleagues, as six senior Financial Services subcommittee members and the vice chairman all signed a letter on November 5 supporting his candidacy.

Bachus will replace outgoing Chairman Barney Frank (D-MA), who is expected to reassume the role of ranking member, a position he last held in 2006.

The View from November 3rd

The results of the 2010 mid-term elections are now in, meaning it’s time to begin analyzing what a new Republican House majority and a more narrowly divided Democratic Senate majority will represent for financial reform efforts in the 112th Congress.

Speaking to reporters this morning, House Minority Leader and likely the next Speaker of the House, John Boehner (R-OH), appeared to tone down previous calls by him and fellow GOP colleagues for a repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act, instead expressing his caucus’s intention to begin closely scrutinizing the implementation of the sweeping financial reform legislation through aggressive oversight. The GOP is expected to focus its sights on the following—the newly-created Consumer Financial Protection Bureau (CFPB); FDIC resolution authority that allows the agency to wind down failing financial institutions; and new rules governing financial derivatives. Republican gains in both the House and Senate will almost assuredly nix President Obama’s ability to usher through the Senate a potential nomination of Elizabeth Warren as a permanent director of the CFPB.

Despite the GOP’s renewed focus on overseeing and potentially repealing certain provisions of Dodd-Frank, a Democratic-controlled White House and Senate will still significantly hamper Republicans’ ability to pass any broad or sweeping changes. The most viable tool at Republicans’ disposal will be the power of the purse, as attempts could be made to prevent Dodd-Frank’s implementation through the withholding of federal appropriations to certain agencies. However, from a political standpoint, it remains to be seen whether the new House majority will risk being viewed by the electorate as proponents of Wall Street deregulation when looking ahead to 2012.

In addition to the oversight of Dodd-Frank, the looming congressional battle and the top legislative priority for the House Financial Services and Senate Banking Committees will be the reform of the U.S. housing finance system, particularly the Government Sponsored Enterprises (GSE), Fannie Mae and Freddie Mac.

In terms of key committee leadership posts, the top contender for the chairmanship of the House Financial Services Committee appears to be current ranking member Spencer Bachus (R-AL), who has served as the committee’s ranking Republican since beating out Howard Baker (R-LA) in 2006. Bachus possesses a conservative voting record and has stated his intention to make GSE reform and the reexamination of the Dodd-Frank bill—particularly the provisions related to the CFPB and derivatives regulation—his top priorities. The other potential contenders for the chairmanship include Ed Royce (R-CA) and Scott Garrett (R-NJ), although Garrett told reporters today that he expects Bachus to be chairman. Top Democrat Barney Frank (D-MA) is also expected to reassume the role of ranking member, a position he last held in 2006.

Aside from the transition in leadership, the committee will also lose at least 16 of its members due to reelection losses or retirements (13 Democrats and 3 Republicans). Of those 16, the most prominent committee member that will not be returning in January is the chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, Paul Kanjorski (D-PA), who lost his bid for a 14th term on Tuesday. Currently, Gary Ackerman (D-NY) is next in line to assume the ranking member position on the subcommittee, which will play an outsized role in the pending GSE debate. Garrett—a vocal critic of the GSEs in their current form—is next in line to chair the subcommittee.

Joining Kanjorski, the following Democratic committee members also lost their races for reelection: Ron Klein (FL), Charlie Wilson (OH), Bill Foster (IL), Travis Childers (MS), Walt Minnick (ID), John Adler (NJ), Mary Jo Kilroy (OH), Steve Driehaus (OH), Suzanne Kosmas (FL) and Alan Grayson (FL).

Over in the Senate, three members of the Senate Banking Committee will be retiring at the end of 2010, including committee Chairman Christopher Dodd (D-CT), subcommittee chairman Evan Bayh (D-IN) and subcommittee ranking member Jim Bunning (R-KY). In addition, Robert Bennett (R-UT) lost his Republican primary for reelection in May. With Dodd’s pending departure, Tim Johnson (D-SD) appears slated to assume the chairmanship, with Richard Shelby (R-AL) retaining the ranking member post. Although Johnson’s chairmanship in the Senate appears secure, senior committee member Jack Reed (D-RI) has also been named as a potential contender. The narrowed Democratic majority of one or two seats on the committee will heighten the need for bipartisanship and ultimately grant moderate members such as Mark Warner (D-VA) and Bob Corker (R-TN) with greater influence moving forward.

Stay tuned in the days ahead as Financial Reform Watch continues to make sense of Tuesday’s historic election results.

Retiring Senate Banking Committee Chairman Predicts Tough Road Ahead for a Director-Less CFPB

Perhaps no section of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act is more controversial on both Capitol Hill and within the financial industry than that which creates an independent Consumer Financial Protection Bureau (CFPB)—and according to the outgoing Senate Banking Committee Chairman, until the President nominates and the Senate confirms a permanent CFPB director, the entire bureau may be at risk in the next Congress.

“Look, this was a controversial section of the bill—don’t have any illusions,” said Chairman Christopher Dodd (D-CT) in reference to the CFPB during a Banking Committee hearing yesterday that received testimony from the heads of the various financial regulatory agencies. “Regardless of the outcome of the election in November, there are going to be people trying to get rid of this bureau, and it’s going to be a lot easier to get rid of it if it hasn’t gotten up and gotten started demonstrating the value and importance of it. So it’s at risk in my view, until we get someone in running the place and demonstrating what it can do and the kind of rules it’s going to develop.”

President Obama’s decision on September 16 to temporarily appoint Elizabeth Warren as "special adviser" to the President and the Treasury Secretary for standing up the CFPB has failed to appease Chairman Dodd, who has repeated such ominous warnings to the administration over the past few months. When taking the newly emboldened GOP and their recent rhetoric into account, Dodd’s sentiments don’t appear to be overstated.

During yesterday’s hearing, Ranking Member Richard Shelby (R-AL), stated his belief that changes to Dodd-Frank are “inevitable” as lawmakers, “when necessary, visit the law and make changes consistent with our findings and the demands of the electorate.” More directly, at a Reuters Washington Summit last week, Shelby referred to the CFPB as a “mistake” and stated his intention to revisit the issue if he assumes the committee chairmanship with a Republican takeover of the Senate in November.

The feelings appear to be mutual for Shelby’s counterpart in the House and the potential Financial Services Committee Chairman in waiting, Spencer Bachus (R-AL), who has continued to lob sharp criticism at the CFPB, referring to it in speeches as the “Credit Allocation Bureau.” In mid-September, GOP leaders even sent a pre-election signal that January can’t come soon enough for their caucus, as House Appropriations Committee Ranking Member Jerry Lewis (R-CA) led an unsuccessful GOP attempt to block funding for the Treasury to implement the Dodd-Frank provisions.

Responding to Dodd’s call for action, Deputy Treasury Secretary Neal Wolin attempted to underscore the administration’s sense of urgency yesterday, testifying that President Obama will formally nominate a CFPB Director “soon” and that “he’s reviewing candidates right now.”

Warren Wins for Now

Seeking to avoid a bruising confirmation battle in the Senate, President Obama appears poised to create a post for consumer advocate Elizabeth Warren in which she would guide the creation of the new Consumer Financial Protection Bureau (CFPB). By making her a "special adviser" to the President and the Treasury Secretary, the President would avoid having to send Warren's name to the Senate for confirmation as the head of the CFPB. This end-run around the Senate is likely to cause consternation on both sides of the aisle. Whether the GOP takes over the Senate or not, the Senate Banking Committee is likely to keep a very close eye on Ms. Warren's activities. Numerous hearings and requests for information could well be in her future. Taking this post would complicate her chances of ever becoming the permanent head of the bureau, as the Senate would not likely be disposed to ratify this approach to installing leadership there. So this may be an effort by the Administration to reward her for her initiative in pushing for the bureau before they give the job to someone who is confirmable.