When talking about “risk” with the old school banking regulators, such as the Office of the Comptroller of the Currency, the Federal Reserve Board or the FDIC, the conversation was usually about “safety and soundness,” or risk to the financial institution’s bottom line and ongoing stability, or about “reputation risk,” or fear of being sued or getting bad press that might affect market price and assets. When dealing with predatory consumer products such as exploding adjustable rate mortgages and tax refund anticipation loans, advocates and regulators often had to frame the problems through that risk lens in order to indirectly obtain fair results for consumers. Those risky products were very profitable to lenders, at least in the short term, but very harmful to consumers and to our economic stability in the longer term. As we have learned now, I hope, allowing risky financial products to be marketed to some consumers ultimately hurts us all.
So, when I attended a meeting at CFPB this month to discuss with advocates and industry representatives how CFPB should define the other “larger market participants” over which CFPB has jurisdiction (besides depository institutions, mortgage lenders and payday lenders), it was quite refreshing to hear the CFPB representatives speak about their oversight, enforcement, research and education duties mandated by the Dodd Frank Wall Street Reform and Consumer Protection Act in terms of risk to consumers.
In meeting and talking with many of the new CFPB staff, I have been impressed with the high quality and diversity of people that Professor Elizabeth Warren has recruited. Warren is Assistant to the President and Special Advisor to the Treasury for standing up the independent bureau that was her idea. The CFPB has intentionally recruited staff from diverse backgrounds and viewpoints, including financial and labor industry representatives, consumer advocates, researchers and policymakers.
The CFPB has embraced its commitment to diversity and transparency in the way in which it conducts outreach. Instead of meeting separately with consumer advocates and industry folks, for example, the CFPB has hosted joint meetings in which opponents can air their differences and find common ground. The CFPB’s use of its website and email outreach to solicit comments from the public on draft mortgage disclosure forms generated over 10,000 comments, likely many more than would have occurred through old school notice and comment processes, although these are still being used.
The “half empty” part that tempers my celebration is the fact that, due to Senate Republican statements that they will refuse to confirm any person nominated by the President to head the CFPB, the President delayed his nomination until this week and passed over Elizabeth Warren, nominating Richard Cordray instead. Cordray, a highly qualified former Ohio Attorney General, is a great choice to head the Bureau and deserves to be confirmed quickly. Failure to confirm him quickly would mean that the CFPB lacks enforcement authority over non-depository financial institutions and cannot level the playing field between banks and other industry players. American consumers and financial firms will both be better off when the CFPB levels the playing field by fairly and consistently regulating all providers of financial products and services with the primary goal of protecting consumers. The sooner the Senate confirms Richard Cordray as director of the CFPB, the sooner we can all benefit from better oversight and consumer protections.