Director Corday’s appearance before House Committee: strong on theater, weak on substance

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Despite its long duration (over five hours including a recess for a vote), the House Financial Services Committee’s hearing on April 5 at which Director Cordray was the sole witness provided a strong dose of political theater but little in the way of new information or substance.   Although there were many important questions that Committee members could have asked Director Cordray (we suggested several in a prior blog post), members mostly returned to familiar themes in their questions and remarks.  For Republican members, those themes included CFPB overreach and unaccountability to Congressional oversight, damage to credit availability and community banks resulting from CFPB guidance and regulations, excessive spending, and mistreatment of CFPB employees.  Familiar themes of Democratic members included how the financial crisis gave rise to the CFPB and how the CFPB serves consumers by protecting them from discrimination, fraud, and other unlawful practices.

The hearing’s battle lines were drawn during the opening remarks of Chairman Hensarling and Ranking Member Waters.  Chairman Hensarling began his remarks by referencing press reports that Director Cordray intends to run for Ohio governor, expressing surprise that he had not returned to Ohio to do so, and was still serving as CFPB director given that President Trump had the right to dismiss him at will.  He then called on the President to immediately dismiss Director Corday, claiming that the PHH decision allowed the President to do so without the need to show cause.   He also asserted that even if the President needs cause to dismiss Director Cordray, there are numerous grounds on which President Trump could rely.  According to Chairman Hensarling, such grounds include the harm inflicted on consumers by the CFPB’s auto lending guidance (as well as the illegality of the CFPB’s attempt to regulate auto dealers through such guidance) and Director Cordray’s unilateral reversal of well-settled RESPA guidance in the PHH case.

In her opening remarks, Ranking Member Waters praised Director Corday for fighting for “hard working Americans” and thanked him for his continued leadership of the CFPB.  She referenced how much money the CFPB has recovered for consumers and assessed in civil money penalties and mentioned her efforts and those of other Democrats to defend the CFPB’s constitutionality in the PHH litigation.

In addition to Chairman Hensarling’s comments, several other committee members, in their questioning of Director Cordray, raised the issue of his resignation.  Rep. Duffy asserted that because Director Cordray had served as a recess appointee from January 2012 until his Senate confirmation in July 2013, he has already effectively served a five-year term as director and  “consistent with the spirit” of Dodd-Frank, should step down voluntarily now.  In response to Rep. Zeldin’s question whether Director Cordray intended to serve the remainder of his term, Director Cordray stated that he had “no insights to provide.”  When asked by Rep. Hollingworth if he would resign if requested to do so by President Trump, Director Cordray responded that he would follow the law.

While its substantive content was slim, the hearing did produce the following noteworthy information:

  • Somewhat surprisingly, Chairman Hensarling criticized the CFPB for not proceeding more quickly to issue a regulation to implement Section 1071 of Dodd-Frank (which amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses such as the race, sex, and ethnicity of the principal owners of the business).  He commented that the CFPB had engaged in discretionary rulemaking but had not completed the Section 1071 rulemaking mandated by Dodd-Frank.
  • Rep. Lukemeyer criticized the provision in the CFPB’s proposed rule concerning the disclosure of confidential supervisory information (CSI) that would restrict a company’s disclosure of either the receipt or the content of a CID or NORA letter.  Director Cordray indicated that, after considering comments received on the proposal, the CFPB is “going back to the drawing board,” and that Rep. Lukemeyer would  be “happy” with the outcome.   (The proposal would also expand the CFPB’s discretion to share CSI with state attorneys general and other agencies that do not have supervisory authority over an entity.)
  • In response to Rep. Maloney’s question whether the CFPB plans to propose an overdraft rule, Director Cordray noted the CFPB’s long-standing interest in overdrafts, stated that overdrafts continued to be  “on our minds very much,” and said he could not speak to the timing of any rulemaking.  With regard to the timing of other pending rulemakings, when asked about the timing of a final payday/small dollar loan rule and clarifications to the TILA/RESPA integrated disclosure rule, Director Cordray was unwilling to give an estimated date for either item, noting the unprecedented number of comments received on the payday/small dollar loan proposed rule.  Although the CFPB’s arbitration rule is the furthest along in the rulemaking process, Director Cordray was not asked about the timing of a final rule and was only asked about the rule’s application to insurance premium financing agreements.
  • Director Cordray was unwilling to respond directly to Rep. Posey’s question as to how many no-action letters the CFPB has issued.  (None have been published on the CFPB’s website.)  However, he stated that the CFPB’s no-action policy has “not yet generated a lot of demand” which could indicate the policy is not working properly.
  • Several Republican committee members criticized CFPB press releases about consent orders for containing conclusory statements that a company had violated the law despite language in the consent order stating that the company neither admits nor denies the order’s findings of fact and conclusions of law.  In an exchange with Rep. Huizenga, Director Cordray defended the press releases, stating that “the facts are the facts.”   He commented that a consent order’s “neither admit nor deny” language does not matter for the truth of the facts recited in the consent order but matters for whether the facts have been established for follow-on lawsuits by private attorneys.  He was also unwilling to concede that a company might enter into a consent order because it is intimidated by the CFPB’s authority and instead insisted that the main reason a company enters into a consent order is because the CFPB has completed a thorough investigation, “we know the facts,” “they know the facts,” and “they don’t have a leg to stand on.”
  • Director Cordray indicated that the CFPB is looking at possible changes to the prepaid card final rule dealing with the linking of credit cards to digital wallets and error resolution procedures for unregistered cards.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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