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Are Richard Cordray’s days as CFPB director numbered?

Growing momentum in Congress to replace current leadership structure

In his nearly three years as the director of the Consumer Financial Protection Bureau, Richard Cordray made friends and enemies on both sides of the aisle in Congress, on Wall Street and beyond.

Cordray, who took over as the CFPB’s first director in 2013 after serving as Ohio’s attorney general, is currently serving a five-year term as the head of the country’s top financial regulator, with his term set to expire in 2018.

But several new reports suggest that Cordray’s time as CFPB director, at least as the role is currently constructed, could be ending soon.

Throughout Cordray’s time as the sole director, many Republicans on Capitol Hill took issue with the amount of power that Cordray is able to yield, and now Cordray’s power could be limited or taken away entirely thanks to a growing movement in Congress.

According to a new report from Compass Point Research & Trading, there is a “growing willingness” among some Democrats in Congress to reconsider the leadership structure of the CFPB.

In a recent speech, House Financial Services Committee Chairman Rep. Jeb Hensarling, R-TX, said that he is planning to announce Republican-crafted plan to overhaul the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the CFPB, which was created as a result of Dodd-Frank.

In the speech, Hensarling called the creation and rise of the CFPB one of the worst aspects of Dodd-Frank.

“Dodd-Frank has turned the Orwellian-named Consumer Financial Protection Bureau, not to mention the Financial Stability Oversight Council, into tyrants,” Hensarling said.

“With respect to the CFPB, it is a case study in the overreach and pathologies of the unaccountable, administrative state run amok. At almost every opportunity, the Bureau abuses and exceeds its statutory authority, which is already immense,” Hensarling continued.

“The Bureau operates with such secrecy, unaccountability, and bureaucratic tyranny it would make a Soviet Commissar blush,” Hensarling added. “It acts as judge, jury, and executioner, all without accountability and all without due process. This should alarm every American, because as we become less governed by the rule of law and more governed by the whims of Washington regulators, fear, doubt, uncertainty, and pessimism are sown.”

Hensarling went on say that part of the Republican plan to overhaul Dodd-Frank includes installing a bi-partisan commission to oversee the CFPB, rather than a single director.

According to the recent Compass Point note, there is some growing support from some Democrats to do just that.

“Depending on the outcome in November, lawmakers are expected to consider a number of legislative changes to the CFPB including shifting the governance structure to a commission, putting the CFPB on the budget appropriations process, and introducing a handful of industry-specific bills,” Compass Point’s analysts noted recently.

“Our view remains that Democrats are committed to protecting the bureau’s current funding structure but we detect a growing willingness – especially among moderate Democrats – to consider shifting the CFPB from a directorship to a commission,” Compass Point’s analysts continued.

Cordray’s autonomy is currently one of the central issues in a highly publicized court battle between the CFPB and PHH over a $109.2 million fine levied against PHH by Cordray himself, who overruled a decision from Administrative Law Judge Cameron Elliot.

In that instance, Cordray went beyond the judge’s penalty recommendation stemming from a series of Real Estate Settlement Procedures Act violations that PHH allegedly committed when it accepted kickbacks for loans that closed on or after July 21, 2008.

Cordray’s decision was that PHH violated RESPA every time it accepted a kickback payment on or after July 21, 2008 – going beyond Judge Elliot’s ruling, which had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008.

PHH challenged that decision, with the issue making its way to U.S. Court of Appeals for the District of Columbia Circuit earlier this year.

During that hearing, one of the judges repeatedly questioned the structure of the CFPB and the concentration of power that rests with Cordray, and based on a separate report from Compass Point, there’s a “75% probability that the CFPB's $103M increase to the original PHH fine will be substantially reduced or vacated entirely.”

A loss in this case would be a strong rebuke of Corday’s power and authority.

As Compass Point noted, much of the shift away from a single CFPB director to a commission depends on the results of November’s election, but is there another way out for Cordray?

According to a report from the Columbus Dispatch, there just may be, in the form of a return to Ohio to run for governor.

The Columbus Dispatch report notes that a special interest group called Protect America’s Consumers recently began running ads on TV in Ohio suggesting that Cordray is considering running for governor of Ohio in the 2018 election.

From the Columbus Dispatch report:

The ad buys are small — probably around $50,000 nationwide, including $12,500 in Columbus on cable TV, according to Tim Kay, director of political strategy at NCC Media, which tracks cable ad buys — but they speak to the interest in Cordray’s political future.

Protect America’s Consumers appears to be fighting on two levels: It wants to oppose the agency, which many Republicans say lacks accountability, and it wouldn’t mind also thwarting Cordray’s political future.

“Richard Corday is the extremely powerful boss of the government agency, the CFPB,” the announcer intones in the ad ending today. “Rumor has it that he also wants to be Ohio’s next governor.

“But running for office is very expensive. So Richard is using his immense power at the CFPB to make a new regulation that will massively benefit Richard’s potential donors.”

As the Dispatch report notes, Cordray’s term as CFPB director runs through 2018, which would leave him unable to campaign for Ohio’s top office.

But if he was removed from his position thanks to a Republican-led effort to reform the leadership structure of the CFPB, Cordray could have some time on his hands, perhaps even enough time to run for governor if he chooses.

As for the CFPB that Cordray would theoretically be leaving behind, Compass Point suggests that moving from a single director to a commission would considerably impact how the CFPB operates.

“Our channel checks estimate that shifting the CFPB’s governance from a directorship to a commission would double the bureau’s already elongated rulemaking timeline, cut its enforcement activity by 50% to 75%, and result in a far greater importance being placed on supervision,” Compass Point’s analysts noted.

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