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Why GOP vows to block Obama nominee for consumer-watchdog agency

The sweeping financial reform legislation passed by Congress a year ago created the Consumer Financial Protection Bureau. President Obama nominated its first director Sunday, but Republicans are against the structure of the entire agency.

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Since the Republican senators could block her appointment, the Obama administration decided to wait until Congress went on recess so Obama could make her a “recess appointment,” who would run the bureau until the end of the year. But the Senate has not recessed. Instead, Ms. Warren has unofficially run the bureau.

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“The question is do [the Republicans] finally relent at some point?” asks Mr. Davis.

He expects Mr. Cordray will face the same situation as Warren has – running the bureau unofficially.

Former colleagues describe Cordray as intelligent and reasonable, with a focus on finding practical solutions to policy issues. During the two years Cordray served as Ohio’s attorney general, his office brought several cases against major Wall Street firms – including American International Group, Inc., which reached a $725 million class action settlement with Cordray’s office in 2010.

“He is brilliant and has balanced judgment,” says Nancy Rogers, who preceded Cordray as Ohio’s attorney general, in an e-mail. “I believe that he will listen carefully and thoughtfully when he assumes this major new responsibility for our nation, and that he will make decisions based on rigorous analysis of the issues.”

In all his work, Cordray is driven by details, not dogma, adds Bill Faith, executive director of the Coalition of Homelessness and Housing in Ohio, who has known Cordray for 20 years.

“He’s not some ideologue consumer advocate,” says Mr. Faith, who recalls answering detailed questions that Cordray would ask him on housing and consumer issues.

Faith says Cordray only used litigation as a last resort. “It was really only after years of pursuing every other strategy that Rich Cordray ever filed his first lawsuit against the financial-services industry,” says Faith.

One of the first items on the agenda for Cordray is to amend the financial-disclosure forms that people receive when they look for a loan to buy a house.

“The watchword is transparency,” says Mr. Plunkett of the Consumer Federation of America. “They are really reinventing the pile of papers most people get when shopping for mortgage loans.”

However, Mark Calabria, director of financial-regulation studies at the Cato Institute, a libertarian think tank in Washington, worries that the CFPB will make the documents worse. For example, he says consumers don’t really care how much each fax is going to cost, only what the bottom line is. “What you really need to know is what is the total cost, what is the interest rate,” he says.

The new bureau is also expected to start the process of regulating nonbanks such as mortgage lenders, credit bureaus, and firms that make so-called payday loans (high-cost loans that get someone through to their next payday).

“Every state pretty much regulates the nonbanks already,” says Mr. Calabria, who is concerned that the legislation could lead to taxpayers having to rescue a nonbank.

However, Plunkett points out that many of these organizations were deeply involved in the 2008 financial meltdown by getting poor people to sign up for mortgages they ultimately could not afford.

Plunkett says Cordray can get to work on most of these efforts. But, he notes, there are some new powers such as overseeing nonbanks that can’t be enacted until there is an actual director.

“It’s not a big deal now when they are just getting going, but shortly it will be a big deal,” he says.

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