Cordray foresees possible CFPB limit on rules for smallest banks

Consumer Financial Protection Bureau Director Richard Cordray said before a House subcommittee Tuesday that the agency will explore the possibility of excluding the smallest banks from some of its rules.

Republicans on the subcommittee pressed him on whether he would shape upcoming rules to keep already overburdened community banks from having to comply with regulations meant for larger firms responsible for the crisis. Cordray said one way the CFPB could do this is by setting minimum asset levels to which new rules would apply.

“I had a phone call with community bankers through the (Independent Community Bankers of America) just this past week, and one of the questions was ‘Is there a threshold beyond which a rule should not apply?'” he told the subcommittee, adding that the bureau would also conduct analysis on how rules would impact banks with fewer than $10 billion in assets.

There was more than one concern at Cordray’s first hearing before Congress as the new director. Rep. Darrell Issa, R-Calif., pressed him on the controversy of his recess appointment.

“I’m in a job … with responsibilities the law of the land has put on my back,” he said.

When asked if the new regulator’s work would be compromised if a court later finds the recess appointment was unconstitutional, Cordray hinted that the problem would have to be tackled then.

“It’s a bit of a dilemma,” he said.

Cordray also defended previous statements during more heated hearings with the bureau’s architect Elizabeth Warren, who said the CFPB will be one of the most scrutinized agencies in Washington. Republicans grilled her on what they felt was a regulatory agency with an unprecedented lack of oversight and blocked a vote on Cordray until their demands for reform were met.

“I do know there are very specific oversight provisions in our law that apply to us that do not apply to other agencies. Our budget is subject to a cap. We cannot raise our budget by raising fees. We would have to come to Congress and go through the appropriations committee for that. Our rules can be overridden by the Financial Stability Oversight Council, not true of any other agency. We’re subject to more audits than other bank agencies. There is a way in which (Warren’s) statement is quite true.”

In 2011, the CFPB hired 757 employees and received a $300 million budget. According to the Dodd-Frank Act, its budget is capped at $500 million, which it will pull from the Federal Reserve.

By the end of 2012, Cordray said upcoming rules related directly to mortgages will be proposed. The qualified mortgage requirements, which could set the market for years to come, will be proposed early this year. A rule will also be released on the long-anticipated TILA/RESPA joint document before the summer. Upcoming panels organized by the CFPB to discuss the documents will be convened “very soon,” Cordray said.

The CFPB will also continue building up to take over regulatory duties over the entire mortgage process from origination through servicing, payday lenders and other nonbank firms. When all is complete, Cordray said he expects the headcount at the CFPB could reach around 1,500 people capable of setting rules and evaluating companies for compliance.

He assured lawmakers that it would not be run as many Republicans have characterized it. The former Ohio attorney general said more than once that the CFPB will not be able to “set the price or fee on any product.” The director also said he is working to clarify confidentiality agreements between banks and the bureau.

“I don’t think there is a lot of uncertainty here. I think it’s very clear in the statute for something to be an abusive practice it would have to be a pretty outrageous practice,” Cordray said. “If you stay away from pretty outrageous practices, you should be safe.”

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

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