Will the New CFPB Even Crawl?

Last July, the new Consumer Financial Protection Bureau (CFPB), conceived by Congress in the post-crash financial regulatory overhaul, came into being with great fanfare, carrying hopes it would champion consumer interests against the types of predatory practices that had helped bring about the “Great Recession.” Six months later, the question can be asked: was the CFPB stillborn, a victim of “infanticide” by the same Congress that gave it birth?

Under its statute, the CFPB cannot carry out its most important functions, including regulating “non-bank” financial businesses, such as payday lenders, mortgage companies and debt collection agencies, until it has a director. Exploiting this leverage, Republican senators recently filibustered the nomination of President Obama’s choice to head the agency, former Ohio Attorney General Richard Cordray, a highly qualified candidate whose credentials were not in dispute. These senators opposed the appointment of a director until the structure and powers of the CFPB were fundamentally altered by replacing a single head with a bipartisan commission, subject the agency’s budget to the congressional appropriation process (funding currently comes from the Federal Reserve), and making it easier for other banking regulators to veto the CFPB’s rules.

With Democrats unwilling to bow to these demands, the Cordray nomination seemingly died, leaving the CFPB leaderless and powerless. Without a director, it can do little more than take consumer complaints, promote consumer financial education and issue reports. Its most concrete action has been to propose simplified mortgage forms. These and other initiatives would remain unenforceable, however, and the ambitious reform agenda of its backers still stymied, until a director was appointed.

Defiantly, President Obama has now done just that, without Senate confirmation. On January 4, exercising his constitutional appointment power while Congress is in recess, he named Cordray to the CFPB post. The appointment is only short-term, however, and more problematically, Congress technically was not in “recess,” (thanks to GOP wrangling of Senate procedure), which places the appointment in uncharted legal territory and invites an almost certain court challenge. Thus, even with the President’s daring end run maneuver, the effectiveness and future of the CFPB are still very much in doubt.

Consequently, this could still leave the FTC as the primary cop on the consumer financial protection beat – a duty this hyper-aggressive FTC will be only too eager to discharge. Alone or with state authorities, the FTC has brought nearly 500 cases during the past three years aimed at protecting the “Great Recession” consumer from allegedly dubious schemes, including debt relief, foreclosure rescue, payday lending, grants and business opportunities. Most recently, it obtained multi-million dollar judgments in a mortgage modification and foreclosure relief action; a court order requiring a payday lender to pay nearly $300,000 for illegally trying to garnish borrowers’ wages; and a $29.8 million judgment in a government grants case.

With 13 million Americans still unemployed, and millions more still struggling to get by, the FTC has said that consumer financial protection will continue to be a top priority. DR financial marketers should remain on high alert. While the CFPB may be handcuffed for now, the fiercely energized FTC remains on the enforcement prowl.

Talking about Direct Response, FTC

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