CFPB's Cordray threatened with contempt charges by House panel

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The House Financial Services Committee is threatening to file contempt charges against Consumer Financial Protection Bureau Director Richard Cordray for allegedly lying about the bureau's investigation into the Wells Fargo scandal.

In a 15-page report released Tuesday by Republican staff, the committee claimed that the CFPB has not produced records showing that it conducted a full investigation of Wells’ branch sales practices or that it was aware of problems with phony accounts before the L.A. city attorney took action against the bank.

The report appears aimed at proving that Cordray lied to Congress in April when he testified that the CFPB had conducted an "independent and comprehensive" investigation and that the agency was already tracking Wells' sales practices.

"No records or other information before the committee corroborate this claim," the report stated.

CFPB Director Richard Cordray.
Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), listens during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, April 7, 2016. Testimony from Cordray today may shed light on the status of several regulations that could curtail revenue from payday loans, prepaid cards and other financial products. At a March 16 hearing, Cordray hinted that a rule to limit prepaid cards won't be finished until June. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Richard Cordray

Lying to Congress could be used as a basis for President Trump to fire Cordray "for cause," the legal standard in the Dodd-Frank Act. (A court case challenging that standard, which could allow the president to dismiss a CFPB director at will, is under appeal.)

The CFPB said it was "reviewing the report."

"As we have previously stated, the CFPB learned from whistleblowers about potential problems at Wells Fargo in mid-2013, just two years after opening our doors," a spokesman said in a statement to American Banker. "Director Cordray has provided a public account of the timeline on which our investigation unfolded, and our order publicly details our findings against Wells Fargo.”

The report, "Was the Cop on the Beat?," claimed that Cordray had failed to properly respond to the committee's subpoena. As a result, the report said, the panel’s chairman, Rep. Jeb Hensarling, R-Texas, should "initiate contempt proceedings against Director Cordray unless the CFPB produces all responsive records." The report also recommended that Hensarling should issue deposition subpoenas to CFPB employees to investigate Cordray.

"Due to CFPB Director Richard Cordray’s failure to honor his legal obligation to produce all records responsive to the committee’s subpoena, the committee’s Wells Fargo investigation is at an impasse," the report stated. "Key questions remain unanswered. For example, the committee cannot substantiate Director Cordray’s Congressional testimony on the current record.”

According to the report, records received from the Office of the Comptroller of the Currency suggest that the CFPB relied significantly on the work of the OCC and the L.A. city attorney as evidence for its allegations leading up to a September 2016 enforcement action against the bank. That is being held as proof that the agency did not conduct a full and independent investigation, as Cordray claimed.

A key issue is the timing of the CFPB's investigation into Wells' fraudulent account practices. Los Angeles City Attorney Mike Feuer first filed a complaint against Wells in May 2015, after articles in the Los Angeles Times in late 2013 described how Wells employees opened checking accounts and credit cards without customers' knowledge. When that complaint was filed, Wells said that it self-reported the issue to the OCC and the CFPB.

But during his testimony in April, Cordray claimed that the CFPB was already focused on Wells' retail branch policies, noting there were whistleblower accounts of problems in that area.

"We actually had engaged in supervisory activity prior to that time," Cordray said.

The House panel report said there's no proof that is true. It points to a CFPB exam report that shows the bureau did not get involved until after the L.A. city attorney filed the complaint.

"Committee staff to date have seen no evidence that the CFPB ever contacted Wells Fargo about its fraudulent branch sales practices prior to May 4, 2015," the report said. "To the contrary, the bank executives and counsel that the committee have spoken with about the issue of the CFPB’s engagement with the bank regarding its branch sales practices ... have indicated that they are not aware of the CFPB ever contacting Wells Fargo about the bank’s fraudulent branch sales practices prior to the bank self-reporting to the CFPB on May 4, 2015."

The report argues that CFPB essentially piggybacked on the L.A. city attorney's investigation and the OCC's work, pointing to OCC documents in which the bureau allegedly agreed it did not need to conduct a "full" investigation.

“The CFPB indicated to the OCC that Wells Fargo’s objective was and is to provide the CFPB with all information necessary for the CFPB to make an enforcement decision without having to conduct a full investigation in order to align with the timing of the anticipated settlement with the city of L.A.," the report said.

Ultimately, Wells agreed in September 2016 to a $190 million settlement in fees and restitution with the L.A. city attorney, the CFPB and the OCC. While Democrats have used the case as Exhibit A for how the CFPB has helped consumers, the committee report is designed to argue the opposite. The report suggested the bureau was late to the situation and not heavily involved.

The report also repeatedly claimed that the CFPB is withholding evidence. It said that the bureau tried to keep its exam report redacted from Congress before the OCC provided the report in its entirety to the House panel.

It also says there is additional information that was not disclosed. The report stated that the OCC has produced "a CFPB report and contemporaneous OCC employee notes of calls with the CFPB, recounting CFPB decision memoranda and communications that appear to be essential" to the bureau’s Wells Fargo investigation.

"None of these, or other responsive records, have been produced to the committee by the CFPB," the report said. "It is incontrovertible that the CFPB possess additional records responsive to the committee’s subpoena that the CFPB has failed to produce."

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Policymaking Richard Cordray Jeb Hensarling CFPB OCC
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