Last week, Consumer Financial Protection Bureau Director Richard Cordray announced he will be stepping down from his position at the end of the month, an expected move to clear his schedule for a rumored gubernatorial run in Ohio. Since his controversial recess appointment to CFPB by former President Barack Obama in 2012, Cordray has made a name for himself targeting unpopular industries such as payday lenders and for-profit colleges — the perfect political fodder to spin a campaign narrative about “looking out for the little guy.”
The truth, however, is that Cordray as CFPB director has a history of facilitating deals that lack transparency and neglect due process. A secret deal Cordray struck with hedge fund manager Donald Uderitz regarding the collection of student loan debt is just the latest example.
The questionable relationship Cordray and Uderitz began when high-risk private student loan investments were made through the National Collegiate Student Loan Trusts. Uderitz’ firm, Vantage Capital Group, ultimately owns the trusts.
It turned out that investing in high-risk student loans proved to be unwise. The high-interest loans came due during the recession, and many borrowers ended up defaulting on their loan repayments.
In an effort to collect its dues, the NCSLT aggressively filed lawsuits against loan defaulters. It finally ran up against a roadblock when it became unclear whether or not the NCSLT was the legitimate owner of the loans. If the courts found that the NCSLT had been attempting to collect loans that it did not own, it would be subject to penalties.
Uderitz disapproved of the debt collection practices of the NCSLT and wanted to go about it in a different way. The CFPB intervened, not allowing NCSLT to reach a settlement through the courts; instead, the governmental regulatory agency resolved the issue through the assertion of bureaucratic power.
The CFPB’s proposed settlement, which is still pending approval from a judge, would force the NCSLT to pay millions of dollars in penalties to the federal government and to the borrowers who were allegedly subject to unlawful lawsuits.
The deal directly benefits Uderitz, who will essentially be the administrator of all the loans owned by the NCSLT. As a result of his new role, Uderitz will receive any remaining funds once the loans’ noteholders are paid.
However, it seems highly implausible that Uderitz simply objects to the NCSLT’s debt lawsuits on selfless grounds. Good businessmen always look for the biggest stake in the game. In this case, it is likely that Uderitz found a bureaucratic solution to his financial troubles and will recuperate more losses than he otherwise would have had the NCSLT continued down its litigative path.
Furthermore, it is unlikely that Cordray had strictly disinterested motives in proposing the settlement as a rumored gubernatorial candidate in Ohio. It certainly wouldn’t harm Cordray’s campaign if he could boast about his time fighting nefarious big banks.
After learning about the deal between the CFPB and NCSLT, the Ohio Republican Party filed a Freedom of Information Act request for documentation of all correspondence between the two parties. In the request, Ohio Republican Party Executive Director Rob Secaur wrote: “It is concerning that the group task[ed] with protecting consumers would unilaterally change the process in which student loans are collected, without laying out the terms of the agreement, and giving power to someone who stands to directly benefit from their new position.”
Such bureaucratic overreach undermines the rule of law, weakens protections of individual rights, and ultimately opens the door to cronyism. Let’s hope that the next CFPB director sheds some light on the bureau’s shady dealings to close Cordray’s chapter as director once and for all.
Shannon Watkins is a Young Voices Advocate. She is a writer based in Raleigh, N.C.
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