The potential nomination of National Credit Union Administration (NCUA) chairman Mark McWatters as the director of the controversial Consumer Financial Protection Bureau (CFPB) has run into trouble as one industry group has raised public objections to him, while others are critical behind the scenes.
The CFPB was established as a virtually unaccountable independent agency in a constitutionally questionable provision of the 2010 Dodd-Frank Act on the basis of disputed academic research on bankruptcies conducted by Sen. Elizabeth Warren (D-MA). The agency has been involved in a number of controversies about regulations issued under the direction of its former head, Richard Cordray, who is now a Democratic candidate for governor of Ohio.
Warren sits on the Senate Banking Committee, the first stop in the confirmation hearings for any CFPB director nominated by President Trump. Warren is almost certain to use those hearings as a launching pad for her anticipated 2020 campaign for the Democratic nomination for President by attacking the nominee and the Trump administration over its plans to, in effect, dismantle the agency she helped create.
One knock on McWatters is that he simply does not have the background or intellectual heft to fight back against the almost certain attacks against Trump’s plans for the CFPB that will come from Warren.
A Republican tax attorney and former Assistant Dean at Southern Methodist University Law School, McWatters is not considered an expert in consumer finance, which has been the focus of much of Senator Warren’s academic research throughout her career as a professor of law. She served on the faculty of Harvard Law School from 1995 until her election to the U.S. Senate from Massachusetts in 2012.
“He will be a defenseless punching bag against her highly partisan attacks,” one source tells Breitbart News.
McWatters also worked under Warren’s direction when he was a member of the TARP Congressional Oversight Panel, which she served on and chaired from 2008 to 2010. McWatters had positive things to say about Warren at the time.
McWatters and University of Kentucky economics professor Kenneth Troske, the two Republicans on the five member panel, said in a 2010 statement while working under her direction that Warren was “quite willing to modify her views if presented with well-reasoned cogent arguments.”
Sources also tell Breitbart News that McWatters has hired a public relations firm to promote his candidacy and is more of a job seeker than a hard core conservative or a Trump agenda supporter.
Breitbart News asked Chairman McWatters to confirm or deny reports he has hired a public relations firm, but has not received a response.
In 2014, President Obama appointed McWatters as the Republican representative to the three member NCUA board.
Obama thought so highly of McWatters he nominated him in 2016 to head up the Export-Import Bank, the poster child of crony capitalism reviled by virtually every conservative leader.
Indeed, the inability of conservatives in Congress to abolish the Export-Import Bank has long frustrated them as one of their major failures.
“He was also tapped by Obama in 2016 to serve as head of the Export-Import Bank, although his nomination was ultimately blocked by Sen. Richard Shelby, R-Ala., the chairman of the Banking Committee at the time, over Shelby’s opposition to the agency’s existence,” American Banker reported.
Whether McWatters has the desire or capability to control the hostile bureaucracy that has burrowed into the CFPB and largely despises President Trump and the Trump agenda is another question.
At the NCUA, which is widely considered a regulatory backwater, McWatters has largely allowed the existing bureaucracy to continue operating at it has before he was named chairman by President Trump in January.
Rep. Ann Wagner (R-MO) has already expressed reservations about at least one aspect of McWatters’ management of NCUA.
“The payment of over $1 billion in legal fees to private counsel raises serious questions about the propriety of the NCUA’s legal fee arrangements, including whether the arrangements were in the best interest of the NCUA,” she wrote McWatters earlier this year, the Credit Union Journal reported.
McWatters pushed back in a letter sent to Wagner in August.
“I am writing to you to address and clarify some assertions in an August 3 letter from Camden R. Fine, President and CEO of the Independent Community Bankers of America . . . Foremost is Mr. Fine’s statement that, ‘In effect, over $1 billion in taxpayer money was channeled through the NCUA into inflated legal fees.’ This is not correct,” McWatters wrote:
I have made it clear I regard the fees paid to outside counsel to be excessive, and NCUA has endeavored to re-negotiate those contracts. Neither my fellow NCUA board member Rick Metsger nor I were involved in either vetting outside counsel or negotiating the terms of the corporate-credit-union-related legal services agreements. The agency should continue its efforts to negotiate a fair and transparent modification of these legal services agreements, where outside counsel has received, to date, over $1.1 billion in fees.
These fees are regrettably excessive, yet our good faith efforts to reach an equitable accord with the recipient law firms have not succeeded. While the fees paid under these contracts may be subject to debate, their source is not. No taxpayer funds were lost through the restructure of the corporate credit unions and no taxpayer money was spent on attorney’s fees, either directly or indirectly. Instead, the funds to pay the legal fees came from the approximately $5 billion in recoveries and were paid from the proceeds of each of the settlements.
Fine considers the $5 billion in recoveries to be “taxpayer money,” while McWatters does not.
That disagreement illustrates one of several reasons why key members of the banking community are not supportive of McWatter’s candidacy at the CFPB.
“The NCUA has developed a reputation for being a cheerleader for its industry,” McWatters’ critic Camden Fine told the American Banker.
In contrast, banking regulators “have traditionally and still are basically impartial regulators of their industry,” Fine said.
In an Op-ed published at American Banker last week, Fine added to his objections to the potential nomination of McWatters to head the CFPB:
The credit union industry’s chief regulator is reportedly on President Donald Trump’s shortlist of potential nominees to lead the Consumer Financial Protection Bureau. As the head of a regulatory agency that advocates on behalf of the tax-free sector of the financial services industry it is charged with regulating, National Credit Union Administration Chairman J. Mark McWatters would not be a wise choice to head the CFPB.
The credit union industry is not fully subject to the entire arsenal of financial regulation, making the NCUA chairman unsuitable to head the consumer bureau. While the CFPB is responsible for consumer protection regulations across the financial services sector, the credit union industry remains exempt from taxation and many regulations, such as the requirements banks must follow under the Community Reinvestment Act. In fact, credit unions are not subject to full CFPB oversight because the NCUA shields them from much of the bureau’s regulations through its lenient interpretations and enforcement.
Further, amid concerns that the CFPB lacks sufficient checks on its regulatory authority, the NCUA’s willingness to flout Congress in its rulemakings makes its chairman suspect for leading the bureau. McWatters and others at the NCUA have been strident advocates for expanding the credit union charter far beyond what Congress intended when it established the industry in the 1930s. Established as not-for-profit institutions to serve individuals of modest means, the $1.36 trillion industry now earns billions of dollars in profits every quarter and features outsized CEO salaries while remaining tax-exempt.
President Trump is under some time pressure to nominate and secure the confirmation of a new director of the CFPB.
OMB Director Mick Mulvaney currently serves as acting director of the CFPB–an appointment that was disputed by current deputy director Leandra English, who was named acting director by outgoing director Cordray in November, leading to an odd situation where both Mulvaney and English told CFPB’s they were in charge on the Monday after Cordray’s resignation went into effect.
Litigation by English to forestall Mulvaney’s appointment failed, but she has appealed the court’s initial ruling.
As acting director, Mulvaney can legally serve for 210 days, a clock that runs out at the end of June. Any nomination Trump makes to head up the CFPB can anticipate a lengthy confirmation battle.
President Trump’s political team moved McWatters’ name up to the head of the short list that also includes George Mason University professor Todd Zywicki, an expert on consumer finance, and retiring House Financial Services Committee Chairman Jeb Hensarling recently, as Breitbart News reported in late December, on the theory that he will be easier to confirm.
Given the highly partisan nature of the U.S. Senate this session, which the Republicans now narrowly control by a 51 to 49 margin after Democrat Doug Jones’ special election victory last month, it is more likely that any Trump agenda supporting nominee will end up being confirmed by a 51 to 49 vote than that Democrats will be won over.
“If President Trump wants to wrest control of the CFPB from Elizabeth Warren and the liberal Deep State she has planted there, he needs a new director who is a brawler and is up to the fight to pull them out by the roots. McWatters doesn’t fit that profile,” another source tells Breitbart News.
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