CFPB's Cordray to Step Down, Allowing Trump to Remake Agency

(Bloomberg) -- Richard Cordray will step down as the head of a controversial consumer watchdog at the end of the month amid growing speculation that he will run for governor of Ohio as a Democrat.

The decision could clear the way for President Donald Trump to install his own director atop the Consumer Financial Protection Bureau, a regulator set up after the 2008 financial crisis to police mortgages, credit cards and other products. Cordray’s departure gives Republican lawmakers a chance to push a deregulatory agenda at an agency that they say has too much power and has burdened lenders with unnecessary red tape.

Cordray, 58, disclosed his plans to leave the agency in an email to CFPB staff on Wednesday. He didn’t say what he plans to do next. Lobbyists and lawmakers have been predicting for months that he would quit to run for governor in his home state.

“Together, we have made a real and lasting difference that has improved people’s lives,” Cordray said of the CFPB in the email. “I trust that new leadership will see that value also and work to preserve it –- perhaps in different ways than before, but desiring, as I have done, to serve in ways that benefit and strengthen our economy and our country.”

‘Rogue Agency’

Cordray -- appointed by former President Barack Obama as the CFPB’s first-ever director -- is leaving before his term expires in July. His status has been in question since Trump took office in January.

The Trump administration will announce an acting director as well as a permanent choice to replace Cordray “at the appropriate time,” Raj Shah, principal deputy press secretary at the White House, said in a statement.

Trump could use a federal vacancies law to have someone step in who has already been confirmed by the Senate, financial services lawyers have said. Treasury Secretary Steve Mnuchin is one possibility, according to Ballard Spahr attorney Alan Kaplinsky. Mnuchin could be named on an acting basis and then appoint one of his deputies to run day-to-day operations until a permanent replacement is installed, Kaplinsky has said.

The process of naming a permanent successor and getting that person confirmed by the Senate could take months.

Finding Successor

The White House has already begun the process of trying to find Cordray’s successor, according to industry lobbyists. Possible candidates who have been discussed include former Representative Randy Neugebauer, a Texas Republican who retired from Congress last year, and Todd Zywicki, a scholar at George Mason’s University’s Mercatus Center, said the people, who requested anonymity because the talks are private.

The Trump administration may also consider a Republican state attorney general or someone with experience running a financial firm, the people said.

Republicans have long urged Trump to remove Cordray, arguing that he lacks accountability and that the agency has stifled lending.

“We are long overdue for new leadership at the CFPB,” House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, said in a statement Wednesday. “The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower and middle incomes.”

Democrats, meanwhile, heaped praise on Cordray for making CFPB an aggressive regulator, noting that the agency has returned $12 billion to harmed consumers.

“The new director of the CFPB must be someone with a track record of protecting consumers and holding financial firms responsible when they cheat people,” Senator Elizabeth Warren, a Massachusetts Democrat, said in a statement Wednesday. “This is no place for another Trump-appointed industry hack.”

Partisan Squabbling

Partisan squabbling over the consumer bureau isn’t new. Plans for creating the agency were central to Republicans’ opposition to the Dodd-Frank Act, which was passed by a Democrat-led Congress in 2010. GOP lawmakers then blocked efforts to get Cordray confirmed as director until Obama installed him through a recess appointment in January 2012.

Even as Trump’s push to roll back financial regulations swept through Washington this year, Cordray continued to be a thorn in the industry’s side. In July, he approved a measure -- later overturned by the Republican-led Congress -- that would’ve restricted lenders’ ability to force customers to settle disputes through arbitration. In October, he announced completion of a rule aimed at cracking down on payday lenders.

Cordray’s tenure was highlighted by last year’s enforcement action against Wells Fargo & Co. for setting up customer accounts without permission and by the creation of rules that require banks to make a good-faith effort to ensure mortgage borrowers can repay loans.

Warren, the Wall Street critic credited with conceiving and setting up the CFPB, has said its actions were necessary to protect consumers from the kinds of predatory lending practices that were exposed by the 2008 crisis.

Ohio Politics

Cordray is a Ohio former attorney general who lost a bid for re-election in 2010 before joining CFPB. He previously held other government posts in Ohio including state treasurer, solicitor general and state representative.

The state’s current governor, Republican John Kasich, can’t seek re-election when his second term ends in January. If Cordray enters the race for the Democratic nomination, at least some candidates who have filed already would withdraw, said John Green, a political science professor at the University of Akron. Cordray technically has until Feb. 7, 90 days before the state’s primary, to declare his candidacy and file with the Ohio secretary of state. Ohio political operatives expect that he will decide to run.

“It just appeared to me that’s where his heart’s always been,” said Greg Haas, a former Democratic Party chairman in Ohio’s Franklin County, where Cordray lives. “I think he’ll make an outstanding candidate.”

He may not be able to formally announce his plans until he actually resigns. Federal authorities have previously interpreted an announcement of a candidacy while still holding an executive position to be a violation of the Hatch Act, said Kathleen Clark, a law professor at Washington University in St. Louis.

A shadow has hung over Cordray at CFPB ever since a federal appeals court in Washington ruled that the agency’s structure was unconstitutional. The October 2016 ruling said the autonomy granted to the director -- who could only be fired by the president for cause -- was a departure from how agencies are typically set up.

At CFPB’s request, the court is reconsidering its decision. While the judges deciding the case could disband the bureau, the Trump administration would prefer that it just give the president power to fire the director at any time for any reason. The banking industry says it wants the agency reformed so that a bipartisan commission votes on regulations and rules, instead of a single director controlling policy.

©2017 Bloomberg L.P.