It is hard to deny Richard Cordray's hiring to run the Consumer Financial Protection Bureau (CFPB) nearly four months ago is a flash point in continuing debates over regulatory appointments and implementing the Dodd-Frank Act.
But with all the angst surrounding his recess appointment, one can almost overlook the massive to-do list he inherited. Cordray is responsible for launching and overseeing an entire regulatory regime — over nonbanks — that never before existed. After an excruciatingly slow start during the months without a permanent director, the CFPB is now moving quickly. Under Cordray's watch, it has designated nonbanks for formal supervision, expanded its processing of consumer complaints and will soon try to succeed where other regulators have failed in streamlining mortgage forms.
Cordray has tried to move past the controversy over his hiring by reaching out to various constituencies. He has spoken at industry conferences all around the country, including his stop two weeks ago at the Consumer Bankers Association convention in Austin, Texas, where CBA President Richard Hunt called the new agency the most accessible in Washington.
ASR affiliate American Banker sat with Corday in Austin to discuss, among other topics, his view on enforcement versus rulemaking, how the CFPB can be responsive to consumers without being political and just what did Dodd-Frank mean by "abusive" practices.
AB: Richard Hunt asked you to expand on comments indicating support for tailoring rules to different-sized banks. How do you reconcile that with the fact the CFPB — with nonbank authority — was designed to level the playing field for all.
Cordray: What I have said is that as we regulate, it just makes common sense for us to think about the burdens that are being placed on thousands of institutions — many of whom we will not be examining ourselves … — and determine whether provisions that are designed sometimes at a degree of specificity necessarily make sense for small institutions that may engage in the marketplace only sporadically.
So again, that's what we're doing with the remittance rule. We're considering whether and, if so, where to set a threshold. That's reflecting the fact that many institutions may only do a remittance transaction on an irregular basis, and it's not part of their normal business. What's important is that we try to level the playing field between banks and nonbanks, who were way off in a different direction. There was something and there was nothing, and that doesn't work. But in a thoughtful, careful way, potentially writing rules that might apply differently at different levels of institutions with different business models, that makes sense. The notion that rules applicable in one consumer market are necessarily exactly the same as would apply in other consumer markets, it's much more situational than that. And I think that's true here. But the important thing is that when there are rules in place, that everybody is held to comply with them on an even-handed basis, it doesn't mean that every particular example is the same.
AB: So is the ultimate goal to level the playing field between small and large institutions? There is obviously tension between the big banks and the small banks on that question.
Cordray: Well, in most of the consumer markets, you take the largest institutions, and you're talking about 80, 85, 90% market share. I just think that it makes sense for us to consider carefully what burdens we're imposing on different types of institutions and be a little bit nuanced about that.
AB: Speaking of regulations, where are you on the "Qualified-Mortgage" — or QM — rule?
Cordray: We recognize that there are links in the chain here, that it's important for us to proceed more quickly because the [separate Qualified Residential Mortgage] rule is … built on and affected by the QM rule. Mortgage markets are waiting on both. We had said …that in the first half of the year we would try to come out with the QM rule, and at this point that's our time frame.
It's a complicated situation, with the QM rule … The mortgage market is so unnaturally depressed at the moment. It was so unnaturally heated before the financial crisis that it feels like we haven't had a natural or sort of sustainable mortgage market for a number of years. And so recent data is not very illuminative on where the mortgage market is going, and that feels like a hard set of calls that we're going to have to make around that. We want to make sure we get that as right as we can, so we're trying to be careful.
AB: You come from an enforcement background, and you've talked about the advantages of using supervision as a tool. But what about your policymaking authority? What tool is more effective: writing rules, or enforcing them?
Cordray: To us there are two different aspects of the rulemaking. There are certain rules that Congress has specified we have to adopt. Many of them have very specific deadlines, many of them have provisions that would kick into play if we were not to meet those deadlines. So it's very important that we do because otherwise institutions would have to go in a different direction and veer back when the rules were written.
Then there are areas where we have rulemaking authority but there's not a particular mandate for us to do something. It's going to be discretionary for us as we see it. On the mandatory rulemaking agenda, there's a lot for us to do in a short time that puts some strains on our ability to deliver, and it puts a premium on us being able to think more quickly, gather data more quickly.
Then there are other issues where we intend to be more broadly consultative and take our time to think through what's the right approach. Rulemaking is a very powerful tool. It's essentially us standing in the shoes of the legislative branch and specifying rules of the road that people have to comply with … It also is an effective tool in some respects if you're trying to affect an entire market.