Lora Bentley spoke with White & Case Banking Partner Ernie Patrikis, regarding President Obama's nomination of former Ohio Attorney General Richard Cordray to lead the Consumer Financial Protection Bureau. The agency, which is an arm of the Federal Reserve, was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
"Warren was a lightning rod, and if she had been a recess appointment it would have been a declaration of war."
Bentley: Will you give us some background on the CFPB and why it was created in the first place?
Patrikis: What it came down to [was] some dissatisfaction with the Federal Reserve ... a lot of the consumer financial protection legislation from a long time ago gave authority to the Federal Reserve because the Fed was thought to be fair and balanced in its outlook ... Over the years, the Fed was thought to have done not too bad a job.
But when it came to mortgage lending, some believed that the Fed just didn't act fast enough. In addition, there was a general sense - whether it's valid or not people could debate all day - that the federal bank supervisory agencies had not been aggressive enough in ascertaining depository institutions' compliance with consumer protection legislation.
Bentley: That's where Warren came in?
Patrikis: Right. Warren, a bright, energetic professor from Harvard Law School, got the idea to centralize all of it in a single regulatory agency. That idea became part of the administration's proposal to legislators. It was modified a bit over time, but it became what we know as the CFPB.
Bentley: Which banks are subject to its jurisdiction?
Patrikis: If there is a bank in a bank holding company family that has more than $10 billion in assets, it gets examined by the bureau. If, in that family, one bank has over $10 billion and others do not, they all get examined by the bureau. But if you're a small bank in upstate New York and you have under $10 billion in assets and a national charter, you're examined by the Office of the Comptroller of the Currency.
Bentley: Warren got the agency up and running because she was the one who came up with the idea. But the president nominated Cordray to actually lead it. Was that a surprise?
Patrikis: Warren was a lightning rod, and if she had been a recess appointment it would have been a declaration of war. She would have had a miserable time before Congress, trying to get through the nomination process. The banking industry didn't think the agency's efforts would truly be subject to a reasonable cost-benefit analysis. In other words, if I'm going to impose this condition on you, what are the costs to the industry, what are the benefits to consumers, what have you. ...
The other issue is, this is a one-person agency ... the other regulatory agencies tend to be boards.
Bentley: That's not going to change with Cordray, right?
Patrikis: Right. This is continuing ... Sen. Richard Shelby, R-Ala., wants the agency to have a board, and he wants it to be subject to appropriations. And he has said he has 44 votes that no one will be named head of the agency unless those conditions are met. Forty-four votes means it will never get to the floor of the Senate. So does the nomination of Cordray mean the president is willing to talk [about a board]? I don't know. We're in limbo still.