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Watchdog-in-Chief Richard Cordray Outlines Plan to Clean Up Consumer Lending

January 23, 2012 at 12:00 AM EDT
Economics correspondent Paul Solman examines the controversial appointment of Richard Cordray to lead the Consumer Financial Protection Bureau. Paul quizzes the tough-on-crime former Ohio attorney general and former "Jeopardy" champ about his appointment's legality, his plans to police financial firms and some Bible trivia.

JEFFREY BROWN: And finally tonight, the head of a new consumer protection agency is in place, but the challenge to the mission and the man continues.

NewsHour economics correspondent Paul Solman has the story, part of his ongoing reporting on Making Sense of financial news.

PRESIDENT BARACK OBAMA: Today, I’m appointing Richard as America’s consumer watchdog.


PAUL SOLMAN: Richard is Richard Cordray, perhaps the most controversial recess appointment in recent memory. After a long procedural battle with the Senate, the president made Cordray head of the Consumer Financial Protection Bureau on Jan. 4.

BARACK OBAMA: When Congress refuses to act, and as a result hurts our economy and puts our people at risk, then I have an obligation as president to do what I can without them.

PAUL SOLMAN: GOP lawmakers cried foul, claiming that the Senate was open for business and wasn’t on recess, even if no business took place.

Senate Minority Leader Mitch McConnell pronounced the move unprecedented, claimed the president had arrogantly circumvented the American people.

House Speaker John Boehner’s reaction? “This action goes beyond the president’s authority, and I expect the courts will find the appointment to be illegitimate.”

The Consumer Financial Protection Bureau was created under the 2010 Dodd-Frank financial reform law. The argument for it, that it will promote fairness and transparency in consumer lending, like mortgages and credit cards. The argument against, as an independent bureau funded through the Federal Reserve, it has too much power.

The Senate Banking Committee’s Richard Shelby.

SEN. RICHARD SHELBY, R-Ala.: This massive new bureaucracy was designed by the drafters of Dodd-Frank to be virtually unaccountable to the American people.

PAUL SOLMAN: The struggle preceded Cordray’s appointment. Harvard Law Professor Elizabeth Warren set up the bureau as a special adviser after it became clear she would never be confirmed by the Senate.

She was opposed by business, but backed by consumer advocates, who produced a rap video on her behalf. Republicans, meanwhile, distrusted the bureau, as seen in this confrontation with North Carolina’s Patrick McHenry about how long Warren would appear at his hearing.

ELIZABETH WARREN, Consumer Financial Protection Bureau: Congressman, we had an agreement.

REP. PATRICK MCHENRY, R-N.C.: You had no agreement.

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

REP. PATRICK MCHENRY: You’re making this up.

PAUL SOLMAN: Since a Warren nomination seemed a nonstarter, President Obama tapped Cordray, a former tough-on-crime attorney general of Ohio who was already the bureau’s head of enforcement.

But in a letter to the president, Republicans had threatened to withhold support for anyone, insisting a bipartisan board run the bureau, not an individual.

Minority Leader McConnell.

SEN. MITCH MCCONNELL, R-Ky.: It’s one individual who could bring down the banking system in this country if he chose to, unlimited power.

PAUL SOLMAN: As Ohio’s attorney general, Cordray made his name as a consumer activist, hounding financial firms that had misled investors, probing foreclosure practices.

ANNOUNCER: This is “Jeopardy.”

PAUL SOLMAN: Decades before that, he had his first brush with successful celebrity.

ANNOUNCER: A judicial clerk from Grove City, Ohio, Richard Cordray.

PAUL SOLMAN: A five-day “Jeopardy” champion at age 27, Cordray was already aggressive.

RICHARD CORDRAY, “Jeopardy” Contestant: I’ll bet $1,000.

PAUL SOLMAN: Betting big, for instance, on his knowledge of the Bible.

ALEX TREBEK, Host, “Jeopardy”: Ecclesiastes says a man hath no better thing under the sun than to do these three hedonistic things.

PAUL SOLMAN: You will learn how he responded in a bit.

But, 25 years after that first moment in the sun, we met with Cordray to ask the former law professor the questions of the hour, starting with, is his appointment legal?

RICHARD CORDRAY: This is a valid appointment. The law is pretty clear on that. The important thing is, we needed a director in order to be able to fulfill the promise to the American people that Congress made.

We’re here now to stand on their side, to protect them against fraud, to see that they’re treated fairly in these markets. I don’t think there really should be anything controversial about that. And I think, to the American people, there isn’t anything controversial about that.

PAUL SOLMAN: Republicans say the Consumer Finance Protection Bureau lacks congressional oversight, has too much power? Legitimate concerns?

RICHARD CORDRAY: I have committed to leaders on both sides of the aisle in both chambers that we will provide them with the information and input that they need to feel comfortable that they understand what the bureau is doing and why. I think that that’s the kind of oversight that is called for. And I’m committed to doing it.

PAUL SOLMAN: Cordray and his agency are already at work — one effort, “Know Before You Owe,” a campaign to make credit card agreements and mortgage disclosures simpler.

RICHARD CORDRAY: Part of that is boiling down the fine print, clarifying the choices and making the most important terms very clear to consumers. Any kind of business model that is based on consumer confusion, so that people don’t really know what they’re getting into or they’re confused about the terms or the terms are going to shift and change over time, that’s of concern to us.

PAUL SOLMAN: For that reason, the Consumer Financial Protection Bureau will examine so-called non-bank firms that until now have mostly escaped federal oversight, payday lenders, student lenders and a primary target, mortgage lenders, largely to blame for the financial crisis, he says.

RICHARD CORDRAY: A huge part of the problem was that some people were regulated. Others weren’t. That led a race to the bottom. People had financial incentive to sacrifice any kind of standards and principles. And enforcement was weak. There’s no doubt about that. That was part of the problem.

PAUL SOLMAN: You’ve said there are going to be real consequences to breaking the law, that is, this law. Like what? Prison?

RICHARD CORDRAY: We do not have criminal authority, although we can make referrals to the Department of Justice. But we can take them to court and into administrative proceedings in order to enforce the law, if we can’t otherwise correct the problems.

PAUL SOLMAN: Aren’t regulators always playing a game of cat and mouse? I mean, how do you get around that as a regulator? How do you keep up?

RICHARD CORDRAY: It’s amazing how creative people can be about avoiding and violating the law.

I used to say about frauds and scams that I saw when I was Ohio attorney general that, if these people would just put this kind of energy into starting a legitimate small business, we could really get somewhere with our economy. But many of them prefer the easy way. And that’s where enforcement is necessary to ward them off from taking that path.

PAUL SOLMAN: You think you’re going to channel them into more socially useful enterprises?


RICHARD CORDRAY: I’m very optimistic. Hope springs eternal.

PAUL SOLMAN: Okay. Finally, from your actual week on “Jeopardy” 25 years ago, one of the many you got right, though I’m not sure the answer applies to your new job, “Ecclesiastes says a man has no better thing under the sun than to do these three hedonistic things.”

RICHARD CORDRAY: Eat, drink and be merry, but be careful how you pay for it.

PAUL SOLMAN:  Those last words aren’t in Scripture, but they are the key to Cordray’s “Know Before You Owe” mission, slated for scrutiny tomorrow, when he faces a House oversight hearing chaired by Representative Patrick McHenry, the same congressman who tussled with Elizabeth Warren last May.