Richard Cordray went out of his way to be liked by Republicans on a Senate Banking Committee panel yesterday, who hold the fate of his confirmation to run the Consumer Financial Protection Bureau in their hands. He said the agency would have accountability. He said he would be “judicious” with federal lawsuits against banks for noncompliance with new rules. He even vowed to “streamline” regulations (more on that in a minute).

And he won the praise of a few Senate Republicans. But because they are opposed to the entire concept of the agency, they remained in opposition to Cordray’s confirmation. The 44 Republicans who signed a letter vowing to oppose any nominee for CFPB unless the agency is gutted remain opposed.

“Neither the president nor the majority has made an effort to work with us to improve the accountability of the bureau,” Shelby said at Tuesday’s confirmation hearing. “It may be good politics for them, but it is certainly bad policy for the American people.” [...]

On Tuesday, Sen. Bob Corker (R-Tenn.) called a recent meeting with Cordray “pleasant,” and Shelby said the nominee had a “good background.” Lawmakers on both sides noted that Cordray’s 12-year-old twins, who sat behind him during the hearing, never seemed to stop smiling.

“You’re caught between a big substantive debate here,” Shelby said.

Shorter Shelby: You’re a nice guy, Mr. Cordray. Pity I’m going to stop you from doing what you want to do. As a result, CFPB cannot without a confirmed director regulate non-bank financial institutions like mortgage brokers and payday lenders.

Back to that regulations piece. Here’s what Cordray actually said.

The nominee to lead the new Consumer Financial Protection Bureau told a Senate committee on Tuesday that he would make it a priority “to streamline and cut back” a mountain of regulations that has grown up over the last 30 years, which he said excessively burdened some banks and discourages them from lending money to consumers.

The nominee, Richard Cordray, who is currently the bureau’s head of enforcement, also told the Senate Banking Committee that if confirmed, he would use the agency’s “bigger and more flexible toolbox” to police consumer financial laws and would make judicious use of “needlessly acrimonious” lawsuits to enforce financial regulations [...]

Mr. Cordray said some regulation of small banks had been overdone, and he promised to roll back unnecessary rules. As the push for disclosure gained ground in the last 30 years, disclosures became “so long and confusing that they didn’t really help consumers, but they certainly posed burdens on lenders,” Mr. Cordray said. “There’s an opportunity to streamline that and cut that back. That’s something that will be a priority for me if I am director of this bureau.”

Given the Administration’s new anti-regulatory agenda, this has caused some concern. But this is no different than the principles-based approach to consumer financial protection which Elizabeth Warren announced almost a year ago for CFPB. Felix Salmon discusses the idea, and I have to say I find it compelling:

Warren, remember, is a law professor: she knows full well that the main effect of laying down rules is to send a thousand lawyers scurrying to find ways around them. And she’s surely also seen the way in which other regulators — the SEC springs to mind — become overrun by lawyers looking for people breaking rules, rather than regulators trying to ensure a clean and level playing field.

At the same time, principles-based regulation is new to the US, and will be worrying to banks who will never know for sure whether what they’re doing is allowed or not.


Principles-based regulation may not work for every single federal agency. But with a sector as malleable and deep-pocketed as the financial sector, using a principles-based approach makes the most sense, in my estimation. We’ve tried the rules-based approach and it simply hasn’t worked. When the rules aren’t rewritten by deregulatory politicians, they are scoured for loopholes by armies of lawyers. This approach allows the consumer to be the focal point, not the banking interests. If a consumer cannot figure out a financial form, then it’s an illegal form; that’s the essence of the idea.

So that’s probably close to what Cordray’s describing here. I don’t know why I took the time to explain it, however, because unless the President breaks with most prior precedent and actually takes action on a recess appointment that would make Republicans mad, there’s no way Richard Cordray or his principles will come within 1,000 feet of the CFPB director’s chair.