WASHINGTON – When President Biden took office in January, open positions in the leadership of the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency were seen as an opportunity for the new administration to have an immediate impact on financial regulation.
While the White House quickly named an incumbent CFPB director and appointed a permanent head of the office, it hasn't even named an interim OCC chief. Three months into the president's tenure, analysts say the administration is losing time if it intends to overturn Trump policies.
"The vacancy at the OCC has been too long," said Aaron Klein, Senior Fellow at the Brookings Institution. "The result is an agency that remains on autopilot from the Trump administration."
Brian Brooks, the outspoken former acting controller appointed by President Trump, left the company in January. The baton then went to Blake Paulson. Paulson, a former OCC auditor, has largely held back, but recent action alerted progressives, who suggest he may be trying to keep Brooks' agenda in place.
"I've been told that there have been some decisions along the way that suggest Paulson is very sympathetic to the Brian Brooks approach … [and] that Paulson continues to work as if Brian Brooks is still there" said a finance minister service lobbyist who spoke on condition of anonymity.
Earlier this month Paulson sent a letter to the leaders of Congress urging them not to invalidate a Brooks policy known as the "True Lender" rule. According to consumer groups, non-banks can evade official control. The letter was reported by Politico.
The OCC is technically an office of the Treasury Department, and without Senate approval, the title of Acting Controller would be left to whoever is named by Secretary Janet Yellen as the agency's "first assistant controller".
The nomination of a permanent controller was made difficult by an intra-party dispute among Democrats. The early favorite, former Treasury Secretary 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 contender, but the position remains pending.
Most legal experts agree that the administration could have appointed its own control officer on the first day. With the delay shifted to the fourth month, analysts say the lack of action is inexplicable. The OCC is technically an office of the Treasury Department, and without Senate approval, the title of Acting Controller would be left to whoever is named by Secretary Janet Yellen as the agency's "first assistant controller".
"It's just the most bizarre situation … people have seen in a long, long time," said the financial services lobbyist. "I don't have a good explanation for it, and nobody else does either."
Others say that given the time it can take to validate a candidate, the White House is losing valuable time influencing regulatory policy. Many of the key rulings on the agenda, including efforts by the authorities to reform the Communities Reinvestment Act, could take years.
Democrats generally rejected the CRA rule set by former Comptroller Joseph Otting. Although the heads of the other agencies appeared ready to return to the negotiating table to develop a universal rule, the lack of an OCC leader with government support is slowing the process.
"It is sluggish to reverse course," said Jeff Hauser, executive director of the Revolving Door Project. "Regulation is time consuming."
In the months leading up to the Biden administration, some analysts predicted that the next political leader to be named head of the OCC – an agency responsible for overseeing around 70% of the US banking system – would have a near-immediate impact on the The country's financial policy could have.
Paulson sometimes just seemed to want to keep the seat warm.
In addition to ensuring the security and health of the financial sector, "the next thing I am really responsible for is a smooth transition when we get the next controller whenever that comes," Paulson said during a virtual conference hosted by the Consumer Bankers Association was held earlier this month.
“I've really told our people from the start, I don't intend to start many new initiatives or make significant changes to the way we work,” added Paulson, “but I deal with problems as they arise. Work closely with our interactors and not … [try] to create new controversy or take over anything – cleaning the record during this transition is really my focus. "
But Paulson's success in avoiding controversy may have come to an end.
The acting auditor sent a letter to Congress earlier this month calling on the Democrats to reconsider a plan to repeal the OCC rule for "real lenders" that consumer groups and their allies have argued are predatory lenders could make it easier to work with banks and avoid interest rate caps in the interests of the state.
"Rejecting the rule would restore banks' lending relationships to previous levels of legal and regulatory uncertainty, which … adversely affects the functioning of secondary markets and limits the availability of credit," Paulson said.
The financial services lobbyist said Paulson's letter about the true lender rule could motivate the administration to appoint its own acting controller faster.
“This could be what ultimately gets everyone going so much that they put the administration under even more pressure and say: 'Enough is enough. Just name a new deputy director, just pick someone we can trust, "said the lobbyist." There needs to be some professional attorneys at OCC who know people well and who are confident that they are at least 100% neutral. "
Some analysts, including former OCC employees, noted that Paulson's endorsement of the "True Lender" rule wasn't particularly strange given the agency's historic approach to politics.
"This latest letter sent by the acting controller seems to be atypical of him," said Dan Stipano, partner at Davis Polk and former OCC attorney. "But it is in line with longstanding positions the agency has held in this area."
"This has created uncertainty in the credit markets since the Madden case," added Stipano. “What OCC is trying to say is that, regardless of our regulation, national banks can export interest rates for legal reasons. … You are trying to create a sense of security in an area that has been insecure because of Madden. "
An OCC spokesperson said it was common for the agency to have such correspondence with congressional officials.
"The OCC routinely provides letters, briefings and other information to clarify the agency's position on rules and regulatory action, both in response to requests from Congress and proactively to dispel misperceptions about agency actions," OCC spokesman Bryan Hubbard said in an email to the leadership of Congress and the Majority and Minority Committee, including Chairman Brown, that 14 letters have been sent for them to consider when following their actions on the resolutions the Congressional Review Act introduced to repeal the rule. "
However, other analysts say the episode threw a harsh light on the risks the Biden government has brought by not appointing its own responsible controller.
"There was no urgency," said Isaac Boltansky, director of policy research at Compass Point Research & Trading, referring to Paulson's early administration of the OCC. "He didn't make the headlines, handing out bank deeds like chiclets, or doing anything the OCC would put at the top of someone in the White House's to-do list."
"I think that has obviously changed," added Boltansky.
Hauser said the government's inability to appoint an interim controller of the currency was not an isolated phenomenon.
"This is something we are currently seeing across the executive branch. That approach is, 'I can't make a decision right now, so I'll stick with what I inherited," said Hauser. "It's an easy mistake and a trait the Biden administration. "
However, the administration decided very quickly to select a new leadership for the CFPB.
While Biden nominee Rohit Chopra awaits Senate approval to head the office, Acting Director Dave Uejio has signaled that more enforcement action is coming. He has also vowed to crack down on mortgage service providers, proposing repealing Trump-era rules to increase fines and penalties for financial firms, and reinvigorating efforts to establish payday loan repayment standards.
"By the time Rohit gets into the chair [to run the CFPB], the car is warmed up and is already driving down the street," said Boltanksy. "But at the OCC, Paulson is described as a caretaker. He doesn't move at all and that has real implications."
Others said even if the government continues to conflict over who it will nominate to head the OCC, appointing an interim controller would go a long way in saving time.
“Think how many of the Trump years regulatory priorities [the Congressional Review Act] are because they weren't implemented until the end of his term, and how many aspects of the Obama years were covered by the CRA because it came in the last 60 Days of his two terms in office, ”said Hauser. "Every month counts in the regulatory process."
"There are processes that can be initiated by a preliminary person where the final, more complicated decisions can be delayed until you have a Senate-approved candidate," Hauser continued. "To empower the candidate, you need to prepare for decisions that will come in a year or two."
In the meantime, analysts say, the clock is ticking on.
"Failure to act is an act in itself," Klein said. "Not naming a controller is an act that has consequences. Sometimes what doesn't happen is just as important as what is."