The political fissure between an Obama-appointed financial overseer and regulators hired by U.S. President Donald Trump is widening, with Consumer Financial Protection Bureau (CFPB) Director Richard Cordray threatening to challenge in court any attempt to kill his agency’s new arbitration rule.
Acting Comptroller of the Currency Keith Noreika wrote Cordray on Monday to raise “safety and soundness” concerns with a draft version of the CFPB rule, which bars firms from forcing customers to settle disputes only through arbitration. The CFPB issued the final version later that day.
Noreika’s letter clears the way to invoke an untested legal provision where the council of the country’s top financial regulators – called the Financial Stability Oversight Council (FSOC) – can nullify a CFPB rule that significantly risks injuring the banking system.
The Republican president’s picks to head the Treasury, Securities and Exchange Commission and Commodity Futures Trading Commission belong to FSOC alongside Noreika.
Since the CFPB opened its doors six years ago, Republican policymakers have hammered it as unconstitutional and attacked Cordray, a Democrat, for exceeding limits on his power.
Cordray is not the only holdover regulator from Democratic former President Barack Obama’s administration – but he is the most vulnerable. A court ruled last year that the president should be able to fire him at will. While the CFPB appeals that decision, Republicans are increasing attacks and more frequently Cordray is standing up to them.
“There is no basis for claiming that the arbitration rule puts the federal banking system at risk,” Cordray wrote Noreika in a three-page letter accompanied by a five-page, detailed memo on Wednesday. Reuters received copies of the memo on Thursday.
Any FSOC attempt to overturn the rule “would be subject to a legal challenge,” according to the memo.
The Dodd-Frank financial reform law says an FSOC member must work in good faith to resolve concerns with a rule before seeking to kill it, and Cordray contends the Office of the Comptroller of the Currency (OCC) did not.
The OCC did not mention the concerns during meetings in 2015, 2016 or 2017, and on June 26 said it had no comments on the draft, Cordray wrote.
The OCC had no comment on the correspondence.
To overturn a CFPB rule, two-thirds of the FSOC must agree that it puts the whole banking system at risk.
“It’s an extraordinarily high standard,” said Brian Marshall, policy counsel for Americans for Financial Reform, a Washington-based advocacy group. “It’s ludicrous that the arbitration rule would meet that standard.”
(Additional reporting by Pete Schroeder; Editing by Riham Alkousaa)
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