We all know the old saying that the fish rots from the head down, and the distinctive piscine aroma that permeates the CFPB – and stinks up the rest of the financial services world – originates in the director’s office.
Since being shoehorned into office in January 2012 through a presidential recess appointment that was recently declared unconstitutional by the Supreme Court, Richard Cordray has presided over the CFPB in a managerial style that could charitably be described as incompetent. In the past two-and-a-half years under Cordray’s leadership, the CFPB has shown itself to be fiscally irresponsible, painfully disorganized, unapologetically anti-business and operating with a fetus-level dependency on the Obama Administration. Its executive leadership has engaged in reckless attacks against the financial services industry that bear no relation to reality, while its internal personnel procedures have been the subject of accusations involving racial and gender discrimination.
Well, the Trumanesque buck has to stop somewhere, and it should stop at the director’s desk. As the captain of this sorry ship, he has turned what was supposed to be an independent and impartial regulatory agency into a mess.
Last month, the CFPB under Cordray’s leadership reached two new lows in stupidity. It is impossible to look beyond these twin atrocities without calling into question whether Cordray has the intellectual and emotional capacity to be in charge of this agency.
The first problem is an acute matter that could place the confidential data of millions of people at risk. In a report issued by the Inspector General of the Federal Reserve Board, the CFPB was warned to that it would need to immediately improve its cybersecurity measures “across all information security areas.” The CFPB’s data-mining operation covers approximately 227 million residential home mortgages and 992 million credit card accounts.
However, the Fed’s Inspector General warned that Cordray’s agency fails to meet any of the security requirements that are clearly defined by the Federal Information Security Management Act. “Our report includes recommendations to strengthen security controls for the [General Support System] in four information security areas: system and information integrity, configuration management, contingency planning and incident response,” the Inspector General stated in a report.
Following the announcement of this report, Cordray faced a direct question in a congressional hearing from Rep. Randy Neugebauer, R-Texas, on whether he was able to “personally guarantee that the consumer information is 100 percent security.” Cordray said that he could not make that guarantee, but that his agency “attempts to safeguard any information we have about the American public.” How very reassuring…NOT!
The second example of dangerous leadership under Cordray is the proposed policy change that would enable the online publishing of so-called narratives in the public database of alleged consumer complaints. In pushing for this change, Cordray’s agency appears to be confused regarding whether it is a protection bureau or an entertainment forum
“In many ways, the narratives are the most insightful part of a complaint,” the agency stated in a press announcement of this change. “They provide a first-hand account of the consumer’s experience and the problem they would like resolved.”
As a former lawyer, Cordray might be familiar with the word “hearsay.” And if he forgot the word, allow me to share the Cornell University Law School definition of the word: “An out-of-court statement offered to prove the truth of whatever it asserts.”
By planning to incorporate hearsay into its online publishing of alleged consumer complaints, Cordray is opening up the possibility that financial services companies will be faced with unsubstantiated accusations by anonymous people, with no recourse of defending themselves against whatever charges are put forth.
Considering the CFPB admits that more than three-quarters of the mortgage-related complaints filed with the agency have been dismissed as being without merit, it is astonishing to consider that Cordray would happily encourage the publication of accusations that run a three-out-of-four chance of being bogus. No responsible regulator would ever allow the industry they are monitoring to be open to such libelous actions.
There is no nice way around it: Cordray cannot do his job, and it will be in everyone’s best interest if he is ejected from his position as soon as possible.
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