Editorial: Protecting Borrowers; Senate Deal Opens the Way

We’re a bit skeptical that a new era of comity in Washington will be ushered in by this week’s agreement under which Republicans in the U.S. Senate allowed confirmation votes on seven of President Obama’s nominees for executive branch positions in exchange for Democrats preserving the minority’s right to filibuster. Several senators suggested afterward that happy days might be here again, but there have been too many false dawns in the long night of partisan gridlock to believe that this deal will make a lasting difference — although we hope it will.

In any case, focusing on process over substance in this case risks missing one very important result. The confirmation of Richard Cordray as head of the Consumer Financial Protection Bureau at long last heralds a new era of federal oversight of companies that lend money to consumers.

The creation of a federal agency to protect consumers from abusive lending practices had its genesis in a 2007 article by Elizabeth Warren, then a Harvard professor and now a U.S. senator from Massachusetts. In that article, Warren famously made the case that the government expended more effort in ensuring that toaster ovens were safe than in protecting consumers who took out mortgage loans.

This idea appealed to the Obama administration and became a centerpiece of its response to the near collapse of the financial system in 2008. Approved as part of the subsequent overhaul of financial regulation pushed by congression­al Democrats, the agency opened for business in July 2011. The problem is that its legal authority remained in doubt because Republicans prevented a vote on confirmation of a director to head the agency, as was required by law.

It should be noted that this was not because they had objections to the president’s nominee, but because they objected to the agency and its mission. So they held hostage the nomination of a well-qualified appointee.

When Cordray was finally confirmed to a five-year term after the Senate deal was brokered this week, he had been waiting for two years to become the bureau’s permanent leader, although he had been serving on an interim basis since January 2012.

The bureau he heads is empowered to regulate interactions between borrowers and lenders ranging from the biggest banks to nonbank lending institutions and payday loan operations. Mortgages and student loans also fall within its purview.

This is a genuinely big deal. Even relatively sophisticated borrowers can easily be confused by opaque language and easy-to-overlook requirements in lending documents. When mortgages that are originated locally are resold on the secondary market, a basic relationship between borrower and lender is severed, sometimes with consequences that are hard for the borrower to foresee. There are many other examples when consumers are at a distinct disadvantage when it comes to dealing with lenders.

Even the banking industry, which generally opposed creation of the agency and worked to prevent Cordray’s confirmation, found something to like in the Senate vote. Richard Hunt, president of the Consumer Bankers Association, welcomed the prospect that government would exercise heightened oversight of nonbank lenders. “What we’re looking for now is full steam ahead to level the playing field between banks and nonbanks,” Hunt told The New York Times.

The real point here is that even arcane matters of congressional process have real-world consequences for ordinary Americans. That those obstacles were overcome in this instance makes it all the plainer how congressional dysfunction is harming the nation in significant ways and how fervently we should all be hoping that those senators are right in predicting an end to the stalemate in Washington.