WASHINGTON – When President Biden took office in January, vacant leadership positions in the Office of Consumer Financial Protection and the Office of the Comptroller of the Currency were seen as opportunities for the new administration to make an impact immediately on financial regulation.
While the White House has moved quickly to appoint an interim CFPB director and appoint a permanent head of the office, it hasn’t even named an interim OCC head. Three months into the president’s tenure, analysts say the administration is wasting time if it intends to relax Trump’s policies.
“The vacant position at OCC has lasted too long,” said Aaron Klein, senior researcher at the Brookings Institution. “The result is an agency that remains on the Trump administration’s autopilot.”
Brian Brooks, the outspoken former interim controller appointed by former President Donald Trump, left in January. The witness then went to Blake Paulson. A former OCC reviewer, Paulson has largely kept a low profile, but recent action has alarmed progressives who suggest he may be trying to keep Brooks’ agenda in place.
“I’ve been told there have been decisions along the way that suggest Paulson was very sympathetic to Brian Brooks’ approach… [and] that Paulson kind of continued to operate as if Brian Brooks was still there, ”said a financial services lobbyist who requested anonymity.
Earlier this month, Paulson sent a letter to congressional leaders urging them not to overturn a Brooks policy known as the “real lender” rule, which consumer groups say allows non- banks to escape regulatory scrutiny. The letter was reported by Politico.
The appointment of a permanent controller has been complicated by an internal party dispute between the Democrats. The top frontrunner, former Treasury Department official Michael Barr, drew opposition from Senate Banking Committee Chairman Sherrod Brown. Mehrsa Baradaran, a law professor at the University of California at Irvine, has also been mentioned as a candidate, but the position remains in limbo.
Most legal experts agree that the administration could have appointed its own interim controller from day one. As the delay extended into its fourth month, analysts say the lack of action is inexplicable. The OCC is technically an office of the Treasury Department, and in the absence of confirmation from the Senate, the title of Acting Comptroller would go to anyone designated by Secretary Janet Yellen as the agency’s “first deputy comptroller”.
“It’s just the most bizarre situation … that people have seen in a long, long time,” said the financial services lobbyist. “I don’t have a good explanation as to why, and neither does anyone else. “
Others say that given the time it can take to confirm a candidate, the White House is wasting precious time influencing regulatory policy. Many of the main regulations on the agenda, including an interagency effort to reform the Community Reinvestment Act, could take years.
Democrats unanimously opposed the ARC rule finalized by former Comptroller Joseph Otting. Although the heads of the other agencies seemed willing to return to the negotiating table to develop a universal rule, the absence of an OCC leader with administrative support is slowing this process.
“There is a slowness in turning the tide,” said Jeff Hauser, executive director of the Revolving Door Project. “Regulation takes time.
In the months leading up to the Biden administration, some analysts predicted that the next decision maker appointed to head the OCC – an agency responsible for overseeing about 70% of the US banking system – could have an almost immediate impact on politics. the country’s financial system.
Paulson seemed to want to just keep the seat warm at times.
In addition to ensuring the safety and soundness of the financial sector, “the next thing that I’m really charged with is to ensure a smooth transition when we have the next controller, whenever that happens,” Paulson said at the time. a virtual conference organized by the Consumer Bankers Association. earlier this month.
“I’ve really been telling our staff from the start: I don’t intend to launch a lot of new initiatives or make significant changes in the way we operate,” Paulson added, “but dealing with the problems as they arise, work closely with our interagency partners, not … [try] create new controversies or take on anything – sort of cleaning the plate during this time of transition is really my goal. “
But Paulson’s success in avoiding controversy may have come to an end.
Earlier this month, the acting comptroller sent a letter to Congress asking Democrats to reconsider a plan to overturn the OCC’s real lender rule, which consumer groups and their allies believe could allow predatory lenders to associate more easily with banks and avoid government interest rates. caps.
“Disapproval of the rule would return bank lending relationships to a previous state of legal and regulatory uncertainty, which … negatively affects the functioning of secondary markets and restricts the availability of credit,” Paulson reportedly said.
The financial services lobbyist said Paulson’s letter on the real lender rule may prompt the administration to move faster to appoint its own interim monitor.
“Maybe that’s what ultimately turns everyone around enough to really put pressure on the administration even more and say, ‘Enough is enough. Just appoint a new acting director, pick someone we can trust, “said the lobbyist. Neutral.”
Some analysts, including former OCC staff, noted that Paulson’s plea for the “real lender” rule was not particularly strange, given the agency’s historical approach. in the political sphere.
“This most recent letter from the Acting Monitor may seem unusual to him,” said Dan Stipano, partner at Davis Polk and former OCC lawyer. “But this is consistent with the long standing positions the agency has taken in this area.”
“This has created uncertainty in the credit markets since the Madden affair,” added Stipano. “What the OCC is trying to say is that regardless of our regulations, domestic banks can export interest rates under the law. … They are trying to create some certainty in an area where there has been uncertainty because of Madden.
An OCC spokesperson said it was common practice for the agency to have such correspondence with congressional leaders.
“The OCC regularly provides letters, briefings and other information clarifying the agency’s position on rules and regulatory actions, both in response to congressional demands and proactively to dispel misconceptions about the agency’s actions, “OCC spokesperson Bryan Hubbard said in an email. 14 letters were provided to majority and minority leaders in Congress and committees, including President Brown, for them to review when they assess their actions related to resolutions under the Congressional Review Act that were introduced to overturn the rule. “
But other analysts say the episode highlighted the risks the Biden administration invited by not appointing its own interim controller.
“There was no rush around this,” said Isaac Boltansky, director of policy research for Compass Point Research & Trading, referring to Paulson’s first stewardship of the OCC. “He wasn’t in the headlines, handing out banking charters like Chiclets, or doing anything that would put the OCC at the top of anyone’s to-do list in the White House.”
“I think that has obviously changed,” added Boltansky.
Hauser said the administration’s inability to appoint an interim controller of the currency was not an isolated phenomenon.
“It’s something that we’re seeing across the executive branch right now – that ‘I can’t make a decision right now so I’m going to stay with who I inherited’ approach, said Hauser. “This is an unforced error, and it is a hallmark of the Biden administration.”
However, the administration acted very quickly in the selection of a new leadership for the CFPB.
Even as Biden’s candidate Rohit Chopra awaits confirmation from the Senate to lead the office, Acting Director Dave Uejio has signaled that a bigger application is coming. He also pledged to crack down on mortgage agents, suggested that Trump-era rules to increase fines and penalties for financial companies be repealed, and re-launched efforts to introduce capacity standards to repayment on payday loans.
“As Rohit sits on the chair [to lead the CFPB], the car has been warmed up and is already driving on the road, ”Boltansky said. “But at OCC, Paulson is described as a keeper. He’s not moving at all, and that has real-world implications.
Others said that even if the administration remained in dispute over who it would appoint to head the OCC, appointing an interim controller would go a long way in saving time.
“Think about the number of regulatory priorities of the Trump years [the Congressional Review Act] because they weren’t completed until the very end of his term, and how many aspects of the Obama years went to the CRA because they occurred in the last 60 days of his two terms ”Hauser said. “Every month counts in the regulatory process. “
“There are processes that can be started by an interim person, where more complicated final decisions could be delayed until you have a candidate confirmed by the Senate,” Hauser continued. “To hold the candidate accountable, you need to prepare for the decisions to come in a year or two.”
In the meantime, analysts say, time is running out.
“Failure to act is in itself an action,” Klein said. “Not appointing a controller is an action with consequences. Sometimes what doesn’t happen is as important as what is.”