Confirming a New FDIC Chief Won't be Easy
Also, Chopra makes kitchen-table pitch on medical debt; PCAOB chair is reappointed to a second term
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In signaling its plans to nominate Christy Goldsmith Romero to run the FDIC, the Biden administration is looking to thread a very narrow needle in the closely divided Senate. The politics, however, aren’t in her favor. Nor is the calendar. So don’t be surprised if Martin Gruenberg keeps running the agency for months – something that by all accounts he seems intent on doing.
While Goldsmith Romero hasn’t been formally announced, her backers privately say they expect that to happen in the next 48 hours or so. Most importantly, they emphasize, she wants the job and has ideas for moving quickly to stem the workplace turmoil that was laid bare in last month’s investigative report.
On policy, the CFTC commissioner is decidedly in the progressive camp, and she’s expected to pick up support from liberals. A former SEC enforcement lawyer, Goldsmith Romero served as special inspector general overseeing the 2008 bank bailouts. The financial crisis, she has said, had a big impact on her views about oversight of the industry.
“One of the things we learned in 2008 was that our financial system was very vulnerable to these highly interconnected financial institutions, these too-big-to-fail companies,” she said during a 2013 interview on C-SPAN. “Their failure actually threatened American jobs and American pensions and American mortgages. And that was really shocking, and I don’t think that regulators were prepared to deal with that.”
Compared to Gruenberg, “she's not going to be any less steadfast from an enforcement or regulatory policy perspective,” says Jeff Hauser, executive director of the Revolving Door Project, which backs progressive nominees. He calls Goldsmith Romero “a reformer without Gruenberg’s baggage.”
Her work investigating fraud connected to TARP also gives Goldsmith Romero law enforcement credentials that the White House hopes will attract Republican support – or at least keep moderate Democrats and independents like Sens. Joe Manchin and Kyrsten Sinema on board.
Time is of the essence for this nomination, and Goldsmith Romero also checks an important box on that front: she was last confirmed for her seat on the commodities regulator in 2022, so financial disclosures and a background check shouldn’t take long. Her previous two nominations (the CFTC and SIGTARP posts) were approved unanimously.
People close to the process say that Senate Banking Chairman Sherrod Brown is on board with pick and is looking to get Goldsmith Romero through his committee, and headed to a floor vote, before the August recess. The schedule is aggressive, but not undoable, the people add.
Still, there are hurdles ahead. The CFTC nomination went through the Agriculture Committee, not the banking panel, so Goldsmith Romero has new forms to fill out and new senators to meet. Under the normal process, staff vetting of nominees usually takes several weeks.
A rapid confirmation isn’t inconceivable – but would require a sense of urgency and a fair amount of bipartisan cooperation. Neither of those are likely to be in large supply when it comes to filling the FDIC slot.
Republicans, despite wanting Gruenberg out, also have reasons not to speed his replacement into office. Historically, FDIC chairs have served their five-year terms across administrations.
It would surprise no one if Gruenberg stepped down in the event that Donald Trump takes back the White House, leaving the seat for him to fill. The embattled leader could stay on (as he did during the first Trump administration), but sources note that Republicans may have grounds to oust him for cause. By contrast, if Gruenberg were replaced by a new Democratic FDIC chair, removing that person would pose thornier legal questions.
There’s also the condensed election-year congressional calendar to consider. The Senate is scheduled to be in session for 13 days in June and 12 in July before lawmakers head out of town for almost all of August. “They would be operating at warp speed in order to get someone confirmed before the August recess,” one former staffer says. “If you don’t get the nominee confirmed before August, then you won’t do it before the election.”
Senators are set to return for just 15 days in September – not a lot of time to wrap up important business (like funding the government) before hitting the campaign trail.
Even if Brown is able to whisk the nomination through his committee, he doesn’t control the Senate floor. With the electoral map favoring Republicans this fall, several observers doubt Majority Leader Chuck Schumer would want to prioritize a Gruenberg replacement over confirming federal judges – who have lifetime appointments.
The Biden administration may also see limited downside for Gruenberg remaining on the job. The FDIC’s regulatory priorities wouldn’t change. Politically speaking, a stalemate over his chosen replacement allows the administration to shift blame to Congress.
Meanwhile, at the FDIC: Gruenberg has shown no signs of stepping back since his announcement that he would resign upon his successor’s confirmation. The FDIC board is planning to hold a meeting later this month with a fairly packed agenda, including one policy item, sources say. The matter pertains only to the FDIC – and not the other banking agencies – and is expected to be contentious, they add.
The chairman has also told division heads that he’s prepared to stay put until the end of the year, sources say. And he’s plowed ahead with plans to transform the culture, including visits to regional offices to hear from staff. (He’s already hit Atlanta, San Francisco, Dallas and New York, an agency spokesman confirms.)
While Gruenberg rebuffed House Financial Services Chairman Patrick McHenry’s request to attend tomorrow’s hearing on the agency’s toxic workplace, he’s working with the committee to find another date to testify, sources note.
Gruenberg’s actions have prompted grousing from employees who expected him to become more of a caretaker after he agreed to resign, according to some insiders. Tensions have also reached the FDIC board, where Vice Chairman Travis Hill has pushed for Gruenberg to recuse himself from leading the agency’s turnaround – so far to no avail.
A particular flashpoint has been the hiring of an outside auditor for the effort. The agency recently solicited applications to fill the role, and Gruenberg has asked FDIC staff to winnow down and rank the pool of candidates, sources say. Hill and fellow Republican Director Jonathan McKernan have maintained the chairman has too much control over the hiring decision – a process they argue should largely reside with the other board members. Their concern is that the auditor could be a rubber stamp.
That issue could come up tomorrow in the House, where McKernan is testifying alongside a Democratic FDIC board member, Acting Comptroller Michael Hsu.
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Medical Debt: CFPB Director Rohit Chopra has a knack for turning labyrinthine regulatory issues into kitchen-table talking points, most notably the bureau’s campaign against “junk fees.” Today, that talent was on display (yet again) as the bureau announced a new proposal designed to eliminate medical debt as a factor in consumer credit scores.
The fine print of the plan is a bit obscure, going back to a 2003 law called the Fair and Accurate Credit Transactions Act, which restricted lenders’ ability to obtain medical information from credit reporting companies. A 2005 regulation allowed the information to keep flowing in many cases, the bureau says – a “loophole” Chopra now is proposing to remove.
The wonkiness didn’t stop Chopra from appearing on “Good Morning America” to announce the proposal. Later in the day Vice President Kamala Harris joined him on a call with reporters. “No one should be denied access to economic opportunity simply because they experience a medical emergency,” Harris said.
Chopra stressed that the current policy has unjustifiably lowered credit scores, pointing to CFPB research that concluded medical debt is different than other consumer loans – and a poor predictor of creditworthiness. “Billing errors are widespread,” he added, yet they end up on credit reports when patients are in collections.
The bureau has already been leaning on credit reporting companies to remove medical debt from consumers’ credit history, which the companies have done voluntarily for a swath of consumers. But 15 million Americans still had medical bills in their credit history as of this time last year, the bureau estimates. Without that information, credit scores would rise and more people would get approved for loans, the CFPB argues. (Officials cited estimates that consumers could see their scores rise by up to 20 points, and that 22,000 additional home loans could be approved each year. Those appear to be best-case scenarios.)
The Other Side: Chopra is “once again acting as a political arm of the White House, rather than as an independent regulator,” McHenry said in a statement. The House Financial Services chairman added that the proposal would make credit reports less accurate, which could actually end up increasing the cost of loans in the long run. “It is badly misguided to remove consequences for consumers who do not pay a debt by wiping out an entire category of debt from credit reports,” he said.
Scott Purcell, CEO of collections industry trade group ACA International, said that “by suppressing information about a consumer’s debt, this [proposal] will increase the cost of medical care and force more upfront payments.”
Notably, the group also shared a thinly-veiled legal threat in the form of a statement from Leah Dempsey, co-chair of the financial services practice at Brownstein Hyatt Farber Schreck, who said the plan exceeds the bureau’s statutory authority and is “arbitrary and capricious.”
The comment deadline for the rule is August 12.
Up Next: In the meantime, the CFPB continues its breakneck pace. Chopra, at the end of today’s press call, said the bureau is also scrutinizing “medical financial products, to ensure that they too do not cause widespread harm in our country.” He didn’t elaborate, but his testimony at a scheduled Senate Banking Committee hearing on Wednesday references “emerging medical financial products, including ones offered in health care facilities.”
Also on tap is a rule targeting data brokers’ use of financial information, using authority under the Fair Credit Reporting Act. It is set to arrive sometime this year, an administration official told reporters Wednesday.
One More Thing: The director’s Senate testimony also flagged “reports that large financial firms like PayPal and JPMorgan Chase are planning to use sensitive data about people’s income and spending to fuel surveillance-based targeting” of advertisements. Casting the trend as part of a slow lurch “toward more financial surveillance and even financial censorship,” Chopra suggested lawmakers should consider legislation that would “put into place stronger protections against abuse and misuse of data.”
Re-upped: The SEC has reappointed Erica Williams as chair of the PCAOB, a bit of a surprise endorsement since her term doesn’t end until October. The extension will keep her in the seat until October 2029.
During Williams’ tenure the regulator has moved to revise dozens of industry-written audit standards. She has also pushed to bolster enforcement and inspections. The chair sent examiners and investigators into China-based accounting firms for the first time in 2022 – resolving a long standoff with Beijing over the reviews.