The potential nomination of National Credit Union Adminstration Chairman (NCUA) Mark McWatters to become the new director of the Consumer Financial Protection Bureau (CFPB) has encountered some unexpected difficulties.
McWatters appeared to be a lock for the job when earlier this month Rep. Jeb Hensarling (R-TX), chairman of the powerful House Financial Services Committee and a long-time critic of the CFPB and its former director, Richard Cordray, endorsed his law school classmate and former aide for the position, and encouraged President Trump to nominate him.
But last week McWatters’ failure to recuse himself from a September vote to deregulate AIG, a company in which he owned a small amount of stock at the time, was reported by Politico, raising unresolved questions about whether that failure to recuse violated federal government ethics standards.
This week, public opposition to his nomination increased within the banking industry when Howard Headlee, president of the Utah Banking Association, vigorously objected to his nomination.
“I would plead with anyone who has even the slightest concern about the ever-expanding power of the fourth branch of government to reject the idea of appointing an activist agency head like McWatters to lead the most unaccountable agency ever created,” Headlee told American Banker.
“I can’t think of a more disastrous combination, not just for community banks, but for the American economy,” Headlee added.
Headlee added his criticism to that of Camden Fine, President and CEO of the Independent Community Bankers of America.
“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,” Fine wrote in a January 5 op-ed at American Banker.
“The CFPB should not be led by the head of an agency that has acted as a cheerleader for the industry under its oversight. Rather, it requires an even-handed official with experience in the broader commercial banking sector,” Fine added.
“The agency would be better served by individuals who have hands-on experience overseeing commercial banks and who are familiar with the full array of regulations under which every commercial bank must toil. For instance, Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig or former FDIC board member Jeremiah Norton—regulatory authorities dedicated to their statutory mission—would be more appropriate candidates for the CFPB,” he noted.
McWatters’s failure to recuse in the vote to deregulate AIG may, in fact, be in compliance with the Office of Government Ethics standards, but the optics are bad and come at the worst possible time for his potential nomination at CFPB.
“The Financial Stability Oversight Council, a panel of regulatory heads that is chaired by Treasury Secretary Steven Mnuchin, decided in a 6-3 vote in September that AIG should no longer be considered ‘systemically important.’ That move ended Federal Reserve scrutiny of the company, which was imposed after the government rescued AIG from near collapse during the financial crisis,” Politico reported last week.
McWatters was one of the six “yes” votes–the bare two-thirds needed to finalize the deregulation.
[U]nder rules from the Office of Government Ethics, federal officials aren’t required to recuse themselves from decisions that affect their financial interests provided that their holdings are less than $15,000, and if they are publicly traded or are long-term government securities.
McWatters owned between $1,001 and $15,000 in AIG warrants, according to his annual financial disclosure updated on July 25. Warrants are similar to publicly traded options to buy stock at a certain price, except the resulting shares are issued directly by the company. That means they are not publicly traded as ethics rules require, according to multiple ethics experts. . .
McWatters also held between $1,001 and $15,000 in regular AIG stock, which would be publicly traded. His financial disclosure puts his net worth somewhere between $797,000 and $1.96 million.
John Fairbanks, a spokesperson for the NCUA, explained McWatters’ decision not to recuse.
“When Chairman McWatters participated in the FSOC vote on AIG’s status as a [systemically important financial institution], it was his belief that his participation was permissible under specific rules that address his ownership of a de minimis amount of AIG common stock and AIG warrants,” he told Politico in a statement.
“He voted in good faith reliance on that understanding . . . Since this issue was brought to his attention, however, he donated his holdings of AIG securities to the Lymphoma & Leukemia Society, and he has foregone any tax credits that he might otherwise claim,” Fairbanks added.
McWatters has received the support of a number of prominent individuals within the credit union industry, in addition to Chairman Hensarling.
One other potential hazard for McWatters is his prior working relationship with Sen. Elizabeth Warren (D-MA), the “intellectual godmother” of the CFPB, ally of Cordray, and Trump critic.
McWatters “was a fellow member on the TARP Congressional Oversight Panel,” which Warren, at the time a professor at Harvard Law School, chaired between 2008 and 2010, NCUA spokesperson Fairbanks told Breitbart News earlier this month.
McWatters was one of two Republicans on the five member panel, and a 2010 CNN article described their working relationship with Warren.
“The two Republicans currently serving on the oversight panel said in a statement that they’ve liked working with Warren,” CNN reported at the time.
McWatters wins praise from John Berlau, a senior fellow at the Competitive Enterprise Institute, which is not supporting McWatters or any particular candidate over the others under consideration to be CFPB director, for the work he did on the TARP Congressional Oversight Panel.
“Mark McWatters has a solid record advocating on behalf of deregulation for small businesses, community banks, and credit unions. As a member of the Congressional Oversight Panel on the financial crisis from 2009 to 2011, McWatters was also a vocal opponent of the pro-bailout and pro-regulation position of chair Elizabeth Warren and other Democrat appointees,” Berlau tells Breitbart News.
Sources familiar with the thinking of progressive activists working to prop up the CFPB tell Breitbart News that those activists are unhappy with Warren, who they believe is inclined to give McWatters a pass if he appears before the Senate Banking Committee on which she serves, for confirmation if he is nominated to head the CFPB.
A pass from Warren could also cause conservatives to oppose McWatters, on the theory that any director of the CFPB who Elizabeth Warren likes is not a director they would like.
“President Trump is under some time pressure to nominate and secure the confirmation of a new director of the CFPB,” Breitbart News noted earlier this month:
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.
Whether McWatters has enough political clout to maintain the support of President Trump after a week of unfavorable news is unclear.
As the clock continues to tick, one thing is clear: the president will have to nominate a permanent director for the CFPB sooner rather than later.