How to (Quietly) Castrate a Wall Street Watchdog

Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, released a letter Monday announcing that his committee will not allow Richard Cordray, disputed Director of the Consumer Financial Protections Bureau (CFPB), to testify before the committee on the CFPB’s semi-annual report.

This comes as the latest in a string of political maneuvers exacted on both sides around the newly-minted CFPB, a much-needed agency established in July of 2011 as part of the Dodd-Frank Act, with the intent of regulating various sectors of the financial industry. Though originally set up by Elizabeth Warren (now a United States Senator for Massachusetts), President Obama decided against nominating her as the first director for fear of an inability to move her appointment through the necessary Congressional approval process. Obama nominated instead Cordray, former Ohio Attorney General.

Republicans are unhappy with the structure of the Bureau, however — specifically what they perceive to be a lack of proper Congressional oversight and an inordinate amount of power held by the Director — and subsequently held Cordray’s nomination in limbo for nearly two years in an attempt to cripple the powers of the agency. Then on January 4, 2012 Obama made a recess appointment, which if left standing, would allow Cordray to serve until the end of 2013. Opponents argue that the Senate was technically in a “pro-forma” session, and therefore was unconstitutionally circumvented by the president. 

Three similar appointments to the National Labor Relations Board (NLRB), made on the same day under the same auspices, have since been found unconstitutional by a federal court and have been thrown out.

“Because were appointed on the same day and in the same manner as these unconstitutional appointments,” wrote Hensarling in Monday’s letter, which was addressed to Cordray, “your appointment was also unconstitutional.”

This follows in the heels of a February letter written to President Obama expressing the collective concerns of 43 Congressional Republicans over the structure of the CFPB: “We have serious concerns about the lack of congressional oversight of the agency and the lack of normal, democratic checks on its sole director, who would wield nearly unprecedented powers,” the statement said. “Accordingly, we will continue to oppose the consideration of any nominee regardless of party affiliation, to be the CFPB director until key structural changes are made to ensure accountability and transparency at the Consumer Financial Protection Bureau.”

The statement calls specifically for the replacement of the director with a bipartisan board, and the subjection of the CFPB’s budget to the annual Congressional appropriations process (it is currently budged through the Federal Reserve). 

“I don’t think that’s an unreasonable request,” said Senate Minority Leader Mitch McConnell (Ky.) in a speech last week to a group of Wall Street bankers. “If I had my way we wouldn’t have the agency at all.”

Democrats have been unwilling to acquiesce to these demands, which would render impotent a regulatory watchdog which has already halted predatory practices by mortgage lenders, won an $85 million settlement from American Express, and opened an investigation into questionable marketing practices by banks and credit card companies against students on college campuses. Due to the legislation that created the Bureau, it would be unable to write new rules or supervise financial institutions other than banks without the purview of a director. 

Cordray will continue to serve, though in a state of limbo, until the end of 2013.