Financial Watchdog Agency Created Under Dodd-Frank Takes Role in College Tuition Costs

Fred Lucas | June 5, 2012 | 7:48pm EDT
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President Obama shakes hands with Richard Cordray at a function in Shaker Heights, Ohio on Jan. 4, 2012, the day he announced Cordray’s appointment, without Senate approval, as the first director of the Consumer Financial Protection Bureau. (AP Photo/Haraz N. Ghanbari)

( – Thirteen months after Senate Republicans warned President Obama that a new consumer finance watchdog’s structure gives an overly broad mandate and unchecked powers to its director, that agency is now involved in higher education.

In a letter dated May 2, 2011, the senators wrote that the director of the new Consumer Financial Protection Bureau (CFPB) “will have vast rulemaking, supervisory, investigative and enforcement powers and the authority to regulate any person or business that offers or sells a ‘financial product or service.’

“This authority will extend not just to traditional financial institutions, but also potentially to thousands of entrepreneurs and small businesses,” they added, advising the president that they would not support any nominee to the post absent structural reforms.

Obama last January controversially appointed Richard Cordray, a former Ohio attorney-general, as CFPB director without Senate “advice and consent” – a “recess appointment” at a time when Congress was officially in session.

On Tuesday Cordray joined Vice President Joe Biden and Education Secretary Arne Duncan at a White House meeting with 10 university and college presidents to discuss ways to keep college costs down and make prices easier to compare for students.

Cordray gave the rationale for the involvement of the CFPB, which was created under the Dodd–Frank Wall Street Reform and Consumer Protection Act, in college education.

“Higher education is a critical part of the American dream, as all of you know, but for many students today, it can only be realized through borrowing,” he said. “It’s often the first major financial decision that a student will make.” asked Cordray whether, for an agency considered a watchdog of Wall Street and the financial industry, reaching into higher education costs would give weight to concerns that the agency’s powers were overly broad.

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“Actually, I don’t think there is anything broad or vague about our powers,” he replied. “These are very specific problems that regular families face across this country – problems with mortgages, problems with credit card debt, increasingly as we’ve seen today problems with student loan debt.

“Knowing what the prices and risks are before they make decisions so they can make better informed decisions,” Cordray continued. “As Secretary Duncan said, these are decisions that will make the market work better. Everybody who supports a free market should want consumers to be well informed, able to compare, able to make choices. That’s what we’re working for.”

The agency’s involvement in an area not directly related to the banking and financial industry backs up Senate Republicans’ concerns, said Jonathan Graffeo, spokesman for Sen. Richard Shelby (R-Ala.), the ranking member of the Senate Banking Committee.

“The unchecked authority and virtually unlimited scope of this massive bureaucracy are the reasons that Republicans opposed its creation under Dodd-Frank in the first place,” Graffeo told in a statement.

In their May 2011 letter, the senators told Obama they not support a nominee to run the CFPB, regardless of party affiliation, until effective checks and balances on the director’s powers were put in place.

“Despite this broad mandate the Dodd-Frank Act failed to provide any real checks on the CFPB director’s powers,” they wrote. “Once confirmed, the director effective answers to no one. The CFPB director will be appointed for a five year term and can only be removed by the President in cases of ‘inefficiency, neglect of duty, or malfeasance in office.’ Thus, the director cannot even be removed for poor performance, including enacting ill-conceived regulations.”

Obama did not respond to the Senate Republicans’ request to establish a board to review the director decision and subject it to the appropriations process. Cordray’s January appointment outraged Republicans, and critics including former Attorney General Ed Meese called the president’s action unconstitutional.

Cordray, Duncan and Biden met with presidents of Arizona State University, Miami Dade College, North Carolina Agricultural & Technical State University, State University System of New York (comprising 64 colleges, universities, and community colleges), Syracuse University, University of Massachusetts System (comprising five universities), University of North Carolina at Chapel Hill, University System of Maryland (comprising 12 universities), University of Texas System (comprising nine universities), and Vassar College.

Duncan said these schools represented 1.4 million students, or five percent of all college students in the country.

The universities and colleges voluntarily agreed to several reforms to make college costs more transparent – reforms the administration is calling on every college in the country to implement.

They will provide students and perspective students with the following information: how much one year of college will cost; financial aid options to pay this cost, with a clear differentiation between grants and scholarships, which do not have to be repaid, and loans, which do; net costs after grants and scholarships; monthly payments for the federal student loans; and comparative information about the rates at which students enroll from one year to the next, graduate, and repay their loans without defaulting on their obligations.

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