While Senate Republicans were fighting the legitimacy of a consumer watchdog, backers say the agency and its now undisputed head were creating a track record that helped consumers save millions of dollars.
“Families, many of them hard-pressed, have money in their pockets, maybe, in some cases, saved a home or sent kids to college, because of the work Rich and his team are doing right now,” President Barack Obama said Wednesday at a White House ceremony celebrating the swearing-in of Richard Cordray to direct the Consumer Financial Protection Bureau.
Obama credited the work of Cordray, a former Ohio treasurer and attorney general, as part of the reason he was ultimately able to get the Senate nod. To date, 6 million Americans have collected more than $400 million in refunds from companies “engaged in unscrupulous practices,” Obama said.
Cordray’s nomination was caught in a political battle that led Senate Majority Leader Harry Reid, D-Nevada, to propose a Senate rule change that would effectively eliminate filibusters over presidential appointments. But a compromise involving two Obama picks for the National Labor Relations Board ended the stalemate and cleared the way for Cordray’s confirmation.
The vote did not end skepticism toward the agency among conservative organizations and financial institutions. Diane Katz, a research fellow in regulatory policy at the conservative leaning Heritage Foundation, said bureau officials “are defining their own powers, which is a dangerous sort of set-up.’’
“We don’t want regulatory agencies deciding how great their powers are, because it’s always going to be as big as they can get away with,’’ Katz said.
Although he ultimately voted to confirm Cordray, Sen. Rob Portman, R-Ohio, said he would move to make the agency more accountable to lawmakers by pushing to have an inspector general assigned strictly to the bureau.
Created by a 2010 congressional overhaul of the nation’s financial regulations, the bureau is designed to not only provide consumers with crucial information about complex financial transactions, but force financial institutions to simplify their complex and — at times — incomprehensible offers for new credit cards or mortgages.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said one of the agency’s crowning achievements was to take action against three credit card companies – Capital One, Discover and American Express – for deceptive marketing practices aimed at enticing customers to sign up for costly and often useless add-on insurance products.
The agency ordered the three credit card companies to pay back nearly half a billion dollars — and to reimburse customers by having the companies put that money directly into affected customers’ accounts, he said. Previous bank regulators had set up “very complicated sets of hoops for consumers to jump through,” that often deterred customers from claiming money they were owed, Mierzwinski said.
Bureau officials have also worked with some 700 colleges and universities, encouraging them to use an agency-created student loan form aimed at giving parents and college students better information about college loan products.
He said it’s important to have an agency whose sole job is to protect consumers. But Katz of Heritage said the very structure of the agency is a concern. Under law, she said, the agency is set up to protect consumers against “unfair, abusive and deceptive practices.”
The problem: While “unfair” and “deceptive” have been used in regulatory law before, “abusive” has not — and its definition is unclear, according to Katz. “It could be doing something that is treated as legal today and next week they could decide that it’s not.’’
Banks and other financial institutions have had to be more cautious about the products they offer consumers, Katz said, which has limited people’s access to financial products.
She objects to the notion that the agency is working to simplify some financial documents, such as student loan forms. “The premise of their work on these documents is that consumers are incapable — absent government interference — of figuring these things out for themselves,” she said.
Lisa Donner, executive director of the Washington-based consumer organization Americans for Financial Reform, said Cordray has done a good job under “constant, microscopic scrutiny.”
Donner credited the agency with creating a comprehensive database of consumer complaints, which she said has put added pressure on companies to resolve problems. The agency has also beefed up research on issues such as payday lending and overdraft fees, she said.
“Some of the markets the CFPB regulates; nobody has ever regulated at the federal level before,” she said. “There’s never been someone just having the focused mission of consumer protection.”