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Debate Over Consumer Agency Continues as Obama Taps Cordray to Lead

July 18, 2011 at 12:00 AM EST
President Obama tapped former Ohio Attorney General Richard Cordray to head the new Consumer Financial Protection Bureau. Judy Woodruff leads a debate over the agency's role, responsibilities and funding with the Roosevelt Institute's Jeff Madrick and David Hirschmann of the U.S. Chamber of Commerce.
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JUDY WOODRUFF: One of the most prominent and contentious changes in the financial regulation law was the creation of a consumer protection bureau. Today, the president picked a leader for that agency. But the debate is hardly over.

After months of a fierce behind-the-scenes battle, President Obama tapped a former Ohio attorney general to head the new Consumer Financial Protection Bureau.

PRESIDENT BARACK OBAMA: I am proud to nominate Richard Cordray to this post. And we have been recently reminded why this job is going to be so important. There is an army of lobbyists and lawyers right now working to water down the protections and the reforms that we passed. We’re not going to let that happen.

JUDY WOODRUFF: Cordray, known in Ohio for challenging banks on mortgage foreclosures and questionable lending practices, has already been working as head of enforcement for the agency.

But he wasn’t the first choice for consumer advocates and many Democrats, who favored Elizabeth Warren, a lawyer, bankruptcy expert and tough consumer advocate from Harvard, widely credited as the essential architect of the agency. The Consumer Bureau was created as part of the financial reform law signed a year ago this week.

The government watchdog agency will oversee mortgages, credit cards and other forms of lending. It can write new consumer protection rules, enforce existing federal consumer finance laws, investigate complaints and review the books and records of banks.

BARACK OBAMA: We are extremely proud of you, Elizabeth. Good luck.

JUDY WOODRUFF: President Obama appointed Warren as a special adviser to get the agency up and running in September 2010.

But Senate Republicans immediately made it clear they wouldn’t vote to confirm her as the permanent chief. And even though she met with many financial industry executives in recent months, she was still characterized by some as being too anti-business.

In a NewsHour interview with Jeffrey Brown last October, she said she’d work with banks and lenders, but would not back down on what she considered sketchy practices.

ELIZABETH WARREN, Consumer Financial Protection Bureau: What I’m really doing is reaching out to the banking industry and saying, some of you want to find another way to compete for your customers. Some of you have tried to put good products out there.

But those products get overshadowed by the ones that are full of tricks and traps, the folks who can pretend to offer you zero percent financing, when the reality is, they know they’re going to make the money through the back door.

JUDY WOODRUFF: Warren also was the center of a very public fight with Republicans at a congressional hearing in May. She said she couldn’t stay for questioning because she had been misled about how long she was expected to testify.

Republican Congressman Patrick McHenry accused her of lying.

ELIZABETH WARREN: We had an agreement for the time this hearing would occur.  

REP. PATRICK MCHENRY, R-N.C.: You’re making this up, Ms. Warren. You’re simply — this is not the case. This is not the case.

JUDY WOODRUFF: Cordray’s road to confirmation may not be much easier. In May, 44 Senate Republicans sent President Obama a letter threatening to withhold support for any nominee.

And the top Republican on the Banking Committee, Alabama’s Richard Shelby, issued a statement yesterday, saying, “Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it. No accountability, no confirmation.”

Today, the president made light of the difficult confirmation process, citing Cordray’s status as a five-time “Jeopardy” champion in the 1980s.

BARACK OBAMA: That’s why all his confirmation — all his answers at his confirmation hearings will be in the form of a question.

(LAUGHTER)

BARACK OBAMA: That’s a joke.

JUDY WOODRUFF: The agency, which officially begins work Thursday, will be independent of other regulators, but funded by the Federal Reserve.

For more about this agency and its new nominee, we’re joined by Jeff Madrick. He is a senior fellow at the liberal-leaning Roosevelt Institute. He’s a regular contributor to The New York Review of Books and the author of the recent book “Age of Greed.” And David Hirschmann is the president and CEO of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness.

Gentlemen, thank you both for being with us.

And, Jeff Madrick, to you first.

We heard a little bit just in that piece about what this new bureau is going to do. But what in your mind are the main things it’s going to be doing that haven’t been done before?

JEFF MADRICK, Roosevelt Institute: Well, you know, we haven’t had consumer protection in the financial area before.

Finance is a very complex subject. It’s easy to trick and deceive. Even when you’re not tricking and deceiving, it’s easy — it’s hard for consumers to always understand what’s going on. What I think your viewers have to get out of this is we’re not talking about particularly liberal economics here.

We’re talking about straightforward, laissez-faire, conservative economics. What Elizabeth Warren wants to do is allow consumers to understand the cost and nature of the products they’re getting, their mortgages, their car loans, their credit cards — the interest on their credit cards, the late charges, and so on.

JUDY WOODRUFF: And you’re saying that’s what this new agency will be doing?

JEFF MADRICK: That’s what it’s going to be dedicated to do.

And had that existed before — it’s very important to understand — much of the credit crisis we had would have been avoided.

JUDY WOODRUFF: All right, let me turn to you, David Hirschmann.

When you hear that that’s the job of this new agency, what is the objection of the Chamber of Commerce and others who have problems with it?

DAVID HIRSCHMANN, U.S. Chamber of Commerce Center for Capital Markets Competitiveness: Well, protecting consumers is a good thing. It’s good both for consumers and for the businesses trying to sell into what we hope is a fair marketplace.

The real question is how is this agency going to work? It was sold as kind of a one-stop shop for consumer protection. But in reality, it’s just one more agency in an overly cumbersome structure that was built 75 years ago. The — both — other federal regulators will consider to do consumer protection, as well as the 51 state attorneys general who are given powers to enforce the rules that are written here.

So, what we have asked from the beginning is, OK, we understand we need to protect consumers. That’s one of the many things that broke down during the crisis. How is this going to work? How are we going to — you know, putting 55 people in charge doesn’t solve the problem.

JUDY WOODRUFF: What about — you brought up — Jeff Madrick, you brought up Elizabeth Warren, but she’s not going to be the one heading up this bureau. It’s going to be — it’s going to be Richard Cordray instead. How much difference does that make in what this new bureau does?

JEFF MADRICK: Well, obviously, Elizabeth Warren had been toxic and had become toxic in Congress. I think it was a pretty great disservice to her. I think her views were distorted.

But Mr. Cordray has similar views, at least in principle. And I think once we get beyond what became the toxic nature of this debate, he will by and large live up to those principles. But let’s keep in mind all this talk about having a structure to support and protect consumers in complex financial areas simply didn’t hold up in the last four or five years.

We didn’t have the structure. In fact, we had, by and large, ample rules, but Washington and state and local regulators didn’t implement them as didn’t oversee a fast-changing industry.

JUDY WOODRUFF: David Hirschmann, what about that point? And, if you would, first, does it make a difference to the Chamber whether — who is heading up this agency, whether it’s Elizabeth Warren or Richard Cordray?

DAVID HIRSCHMANN: Certainly, our view is that any nomination get a fair and thorough hearing in the Senate. Our issue is not with the personality.

It’s really with the unique concentration of powers put into place at this agency. In the name of getting the headline “most independent regulator ever created,” Congress gave up its usual oversight, its usual checks and balances on this agency. So it has its own budget. There’s only one Senate-confirmed position.

So, the reason this nomination is so controversial is because it’s the one shot in five years that the Senate gets to figure out how this is going to work. After this, they can send cards and letters and invite her over — invite him over to testify, but that’s about it.

JUDY WOODRUFF: How about that, Jeff Madrick, that this is the one shot the Senate gets to shape this…

JEFF MADRICK: This agency is housed in the Federal Reserve.

And I don’t doubt that business is upset that it has its own budget. The Congress has been cutting back or holding down budgets at the Securities and Exchange Commission and the Commodity Futures Trading Commission, indeed cutting staff, at a time when they need more staff, in order to keep those regulations from being fully implemented and new regulations being developed.

So I get a little — I get a little energized, let’s say, when I hear, isn’t it dangerous that they have their own budget? Indeed, that’s one of the things we can count on. They will not be cut down by Congress.

JUDY WOODRUFF: David Hirschmann, what about the other point that the advocates for this bureau have raised, that the consumer needs to be protected against this complicated language in credit card arrangements, what happened with mortgages leading up to the financial collapse, that these are all functions, among others, that this new agency will perform?

DAVID HIRSCHMANN: Yes. So, two things.

First, we asked the people setting up the bureau, how are you going to prevent the 51 state attorneys general from having different interpretations on how to protect consumers, so that you have a product that might be legal in North Carolina, but not in Ohio?

We think consumers benefit from having choice. And by creating legal jeopardy, you reduce the choices consumers have. What the fundamental divide here…

JUDY WOODRUFF: So you’re saying there may be contradiction between what Washington is saying and what is coming out of the states?

DAVID HIRSCHMANN: Exactly. So this is not one set of rules. And consumers will be confused by that. They will have a hard time understanding why different products are not available on a national basis.

For us, the simple question is…

JUDY WOODRUFF: Well, let me raise that with Jeff Madrick.

What about that point of criticism?

JEFF MADRICK: Well, I just found these points almost beside the point.

Look at what we have lived through already. Consumers had lots of choices, mortgage, first-time homeowners, refinancing homes. They were deceived constantly by complex products.

Having a central place in Washington to deliver and develop rules that make sense, as opposed to doing it at state and local levels, is probably exactly what we need. We don’t need more consumer choice. We need standardized products that can be understood. And this is basic economics. I want to stress this.

JUDY WOODRUFF: And you’re saying — so you’re saying you don’t see…

JEFF MADRICK: This is not wide-eyed liberal stuff.

JUDY WOODRUFF: You’re saying you don’t see the contradiction that Mr. Hirschmann sees?

JEFF MADRICK: No, I see clarity and standardization. And that’s what we badly need in this market.

DAVID HIRSCHMANN: I think you have hit on the fundamental difference here. There’s a view that says, inform consumers, give them the information in plain English and let them make decisions. That’s particularly important to small businesses that, initially at least, rely on consumer products to start the business.

And then there’s a view that says protect consumers by limiting the choices they have. Let’s create one mortgage, one approved credit card, one of each, right, kind of a plain-vanilla approach to financial products.

We don’t think consumers benefit from fewer choices. We think they do benefit from well-informed disclosure.

JUDY WOODRUFF: And you’re saying that would…

JUDY WOODRUFF: Go ahead.

JEFF MADRICK: That’s an extreme exaggeration of what’s going on.

The idea that there’s going to be one kind of mortgage and one kind of credit card, it’s simply not what’s going on here. This agency is being developed, this bureau, to make it clear to consumers what they are buying. When they have choice, they will understand the choices.

We have lived through a horrible time that’s subjected these people to all kinds of shenanigans. Let’s face the fact, and let’s correct that. And this is a major step in that direction. And I would think, frankly, business would applaud it. It would allow them to sell on a level playing field.

JUDY WOODRUFF: How about that?

DAVID HIRSCHMANN: Look, the bureau is a reality that Congress adopted. We’re not trying to re-litigate the legislation. Our basic question…

JUDY WOODRUFF: But there is an attempt to restructure it.

DAVID HIRSCHMANN: … how do you make sure that this works well with the rest of the regulators? How do you make sure that this isn’t an island out there doing its own thing, but that really that you have all this alphabet soup of regulators talking to each other?

What business doesn’t like is when one regulator says go left and one — and the other regulator says go right. It would be like you’re driving down the street tomorrow and one cop saying the speed limit is 35 and the next one saying it’s 50. It would make it hard to drive.

JUDY WOODRUFF: All right, I hear the two of you driving in different directions tonight.

JEFF MADRICK: Can I just say something about that, Judy?

JUDY WOODRUFF: And I’m sorry, Jeff Madrick. We’re going to have to leave it there. But I know we are going to be coming back to this one.

JEFF MADRICK: That requires a response.

Thank you, Judy.

JUDY WOODRUFF: Thank you very much, Jeff Madrick and David Hirschmann.