WASHINGTON — The nation’s consumer watchdog for credit cards, mortgages and other financial products is set to emerge from a legal cloud that threatened its authority after a Senate deal paved the way for confirmation of its director.
After Tuesday’s approval of Richard Cordray to a five-year term as the head of the Consumer Financial Protection Bureau, the young agency now has the certainty that it has lacked since being created as the centerpiece of the 2010 Wall Street reform law.
That means that bureau rules and enforcement actions designed to protect consumers from risky mortgages, misleading credit card marketing, abusive debt collection and other questionable financial practices won’t be in danger of being overturned because of legal questions about Cordray’s controversial recess appointment in 2012.
“It finally removes the cloud that’s been hanging over the agency since he got appointed a year and a half ago,” said Alan S. Kaplinsky, chair of the consumer financial services group at law firm Ballard Spahr.
The financial reform law gave the bureau authority over a wide range of financial products and services, including debt collection, payday loans and others that have mostly eluded federal regulation.
Nearly all congressional Republicans and much of the financial industry opposed the bureau as a government overreaction, and they fought hard to reduce its power. They demanded significant changes in the bureau’s structure, including replacing the single director with a bipartisan board, that the White House and Senate Democrats opposed.
As leverage to get their way, opponents blocked a confirmation vote on Cordray, a former Ohio attorney general. He was nominated by President Obama two years ago and installed in January 2012 with a recess appointment that was at risk of being overturned by the Supreme Court.
Such a ruling could have left the bureau without a director and without tough regulations that required a director’s approval, including the levying of nearly $500 million in fines against banks and financial services companies.
But on Tuesday, Cordray cleared a major procedural hurdle after Democrats and Republicans reached a tentative agreement to avoid a confrontation over the use of filibusters on presidential nominees.
The Senate then voted 66 to 34 to confirm him. His recess appointment would have expired at the end of this year.
“Now … there’s no doubt that the consumer agency will survive beyond the crib,” said Sen. Elizabeth Warren (D-Mass.), who helped create and launch the agency before being elected last year. “There is now no doubt the American people will have a strong watchdog in Washington.”
Cordray’s confirmation removes questions about his future, said Scott Talbott, the chief lobbyist for the Financial Services Roundtable, which represents large banks. The trade group would prefer that a five-person board run the bureau, but Cordray has been a “solid” director, Talbott said.
“He is a thoughtful and careful leader,” Talbott said. “While we don’t always agree, he has an open door and will sit down and hear your side of the issue.”
Kaplinsky said many of his banking clients are disappointed that the opportunity appears gone for now to reduce the director’s authority and provide more congressional oversight. Michael Thurman, a corporate lawyer with law firm Loeb & Loeb, said companies “should expect a substantial increase in enforcement activity.”
Consumer groups praised Cordray’s confirmation.
“Now that the CFPB has a sheriff running the show, it can move on from all this uncertainty,” said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group.
He predicted the bureau would be more confident in taking action against financial companies.
Senators voted 71 to 29 to limit debate on Cordray’s nomination, with 17 Republicans and two independents joining all the Senate’s Democrats in removing the roadblock to Cordray’s confirmation.
Senate Republicans have said the agency was too powerful and could become too involved in the financial dealings of consumers through new regulations on products and services. Several GOP senators recently have raised privacy concerns about the bureau’s collection of data about consumer financial transactions.
“The lack of accountability and congressional oversight over the bureau’s budget and director is troubling to say the least,” Sen. Mike Enzi (R-Wyo.) said Tuesday in opposing the decision to limit debate.
Republicans want the single-director position replaced by a bipartisan board similar to those that run most other government agencies. GOP senators also want the bureau’s funding to be part of the congressional appropriations process instead of flowing directly from the Federal Reserve.
But facing the threat from Senate majority leader Harry Reid (D-Nev.) to change Senate filibuster rules, some Republicans agreed to allow Cordray’s nomination to move forward.
Sen. Rob Portman (R-Ohio) said Cordray gained some Republican support by making assurances about oversight and bureau rule-making, such as agreeing to meet with the Senate Appropriations Committee.
Cordray’s future was in question because his recess appointment came on the same day that Obama also installed three members of the National Labor Relations Board. Those labor appointments, which took place when the Senate was holding pro forma sessions, were overturned earlier this year by a federal court.
The Obama administration appealed and the Supreme Court recently agreed to hear the case. Although the case did not involve Cordray, analysts believed a ruling would have applied to him.
Cordray’s confirmation doesn’t resolve all the uncertainty over the bureau. A Texas bank and two free-market advocacy groups filed a lawsuit last year challenging the bureau’s constitutionality. The suit is pending in U.S. District Court in Washington.