09/13/2011 12:10 pm ET Updated Nov 13, 2011

Richard Cordray's Complicated CFPB Confirmation

Last week, Richard Cordray, the current head of enforcement of the new Consumer Financial Protection Bureau, or CFPB, testified before the Senate Banking Committee in a crucial first step to obtain confirmation as the agency's first director. As expected, Senate Republicans, while not objecting to Cordray, continue to be concerned about the structure of the CFPB, preferring a five-member commission to the current single director structure. Most concerning to the GOP members is the lack of accountability of a single director whose only check is a possible super-majority override vote by the ten agency members of the new Financial Stability Oversight Council.

For his part, Cordray assured the Committee that he and the agency would be fully accountable to Congress for how the CFPB carries out the laws laid down by Congress. All indicators are that Committee members took him at his word. Of course, Cordray can only provide such assurances for himself -- not the agency's subsequent directors -- and that is where things start to get complicated. There is no reason to doubt that any serious nominee for the position would go into it with an open mind rather than risk a Senate hold that would likely end their prospects for confirmation. The challenge, of course, is how to account for differences in philosophy during the confirmation process that will almost assuredly impact agency policy, particularly in a highly charged and divisive political climate.

While the Director of the CFPB is appointed to such position for a 5-year term, it is often the case that individuals serve in such positions at the will of the President, and often vacate or tender a resignation when the other party takes over the White House. The more "politically sensitive" an appointed position is to a philosophical change in the White House, the more likely that an existing agency head will step down. While there are numerous recent examples of an appointee staying on in a position after a change in Administration, most often the appointee has the benefit of a moderate political philosophy compatible with a new Administration or the appointee noticeably shifts to the center to achieve that result. In any event, politics and policy go hand-in-hand... and that is where it gets very tricky for the CFPB, not necessarily at the top of the agency pyramid, but significantly throughout the agency's ranks.

The agency has a very clear mission -- consumer financial protection. However, there are strident differences of opinion about what that means, and in many cases these different views closely track political party lines. What this means, of course, is that even as the agency is being staffed and tooled to implement its mission, its political detractors will be closely watching for every opportunity to highlight any shortcomings or perceived policy deficiencies. Complicating this is that, while avoiding a political agenda will certainly be an important objective for the agency's policymakers, in pursuing its mission the agency will be presumed to have such an agenda because it ultimately can only speak with one voice, that of its politically-appointed Director. And the Director, of course, will not receive any benefit of the doubt in his or her policymaking decisions.

Interestingly, what this suggests is that the Senate Republicans and former Dem, Committee Chairman Dodd appear to have it right. For the CFPB to be most effective and most insulated from politically-motivated criticism of its polices, it needs to be an agency that has a leadership structure with divergent views -- politically and otherwise. Ultimately, such a structure will provide the most stability for its dedicated and highly motivated staff to be able to succeed in their mission without fear that all of their hard work will be undone by the next appointed Director.

The reality is that the CFPB has and continues to be a political hot potato that ultimately cost its creator, Elizabeth Warren, the opportunity to head the agency she single-handedly conceived and defended. The ultimate irony is that, with a five-member commission structure, Warren could very well be running the agency today as its first appointed and confirmed Director. Instead, Cordray is faced with a significant uphill battle (even if he is confirmed), not because of his qualifications or politics, but simply because so much responsibility and accountability must be heaped on the shoulders of one person. If confirmed, Cordray will head an agency that has the broadest jurisdictional mandate (including large banks and non-banks in numerous industries providing consumer financial products and services) of any existing federal agency and, certainly one of the most important jobs in restoring consumer confidence in a financial sector besieged with consumer mistrust and still trying to find its footing in an economy recovering from the worst financial crisis since the Great Depression.

Consumers, the financial sector and the agency would likely be better served by a commission or similar structure dependent on building a consensus and providing an opportunity for dissenting views. While there was significant sentiment during consideration of the Dodd-Frank Act that a commission approach would water down or hamper decisive agency action, it is hard to imagine that the political heat that the agency could face with a controversial policy decision or provocative stance on an important issue will not have the same effect, or worse. In a very real sense, a commission structure offers a type of deliberative and democratic decision-making process that is much easier to defend in large part because it has the transparency of that process, not one man's word, to provide accountability.