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Peter Carroll helped shape the mortgage regulations at the Consumer Financial Protection Bureau until this spring. Now, Carroll is senior vice president of capital markets at Wells Fargo Home Mortgages, the largest private mortgage lender in the country.
Carroll’s colleague, Lisa Applegate, was the “Mortgage Implementation Lead,” at CFPB, and now she’s “strategic quality manager within Wells' home lending capital markets group,” according to American Banker magazine.
Carroll’s replacement at CFPB, Patricia McClung, was recently at the National Association of Realtors (one of the largest lobbying groups in the country), and for years was an executive at failed mortgage giant Freddie Mac.
What’s remarkable about the revolving-door action at the CFPB this year is that it’s completely unremarkable for the agency.
The Democratic Congress and the Obama White House created the CFPB with its 2010 Dodd-Frank financial regulation bill. The top aides to Messrs. Dodd and Frank, of course, have cashed out to K Street and Wall Street.
So have many of the regulators at the Federal Reserve, the Securities and Exchange Commission, and the Treasury Department who helped implement the rules required by the law.
But the CFPB was supposed to be different. Other financial regulators were “captured” by the industries they were supposed to regulate. One reason was the revolving door: play ball with the banks, and you’ve got a nice job waiting when you get sick of government work. So Congress thought it was time to replace those captured regulators with a new, un-captured regulator.
“How do you prevent yourself from becoming one of the captured regulatory agencies?” was one of the guiding principles for organizing the CFPB, Director Richard Cordray told American Banker.
Cordray has failed to slow the revolving door. Elizabeth Warren, then Obama’s unofficial head of the CFPB, told a House Committee in 2011, “we have been genuinely blessed at the Consumer Financial Protection Bureau with people who have come to this agency who are incredibly smart and who have the opportunity to make lots more money somewhere else, but they truly hear the call of public service; they see the opportunity to make a real difference in a marketplace that they know.”
Many of those people are now “mak[ing] lots more money somewhere else,” and monetizing their “public service.” On the arcadian banks of the C&O Canal in finest Georgetown sits the office of Fenway Summer, a fortunate son of the CFPB.
Raj Date was at CFPB at its founding and served as its deputy director. In 2013, Date founded Fenway Summer, which, according to its website, “uses extensive regulatory, industry, and capital markets expertise to provide unique counsel” to financial firms.
Date brought with him CFPB’s chief of staff, Garry Reader; assistant director of mortgage markets Chris Haspel; senior counsel in the office of regulations Mitch Hockberg; plus CFPB staffers Marla Blow, Alison Miller and Sean O’Mealia. The firm’s website lists 14 employees, meaning half of the team comes from the CFPB.
The firm doesn’t lobby the CFPB or Congress, Date points out. But it does package the expertise gained on the taxpayer dime and sell it to the firms the agency will regulate.
At best, this creates an appearance of impropriety, and it smells of a system where the insiders — government officials and the companies that can afford to hire them away — benefit disproportionately.
But the revolving door also creates perverse incentives for lawmakers, their staffers, and regulators. The more complex the rules, the greater the demand for the ex-regulators who crafted them.
Besides navigating the complexity they created, Fenway Summer profits from market opportunities created by CFPB rules. Fenway Summer this April acquired a mortgage firm, Ethos Lending, which will fill a market niche — so-called non-qualified mortgages — which many banks have exited, thanks to a combination of Dodd-Frank regulations.
Plenty of other CFPB officials have cashed out. Ronald Rubin was an enforcement attorney in the Fair Lending division. Now he’s at the law firm Hunton & Williams, where he “focuses on CFPB and SEC enforcement investigations and litigation, regulatory examinations, and white collar criminal defense,” according to the firm’s website.
Leonard Chanin was assistant director of CFPB’s Office of Regulations, now he “counsels financial institutions on consumer financial services law issues,” at the law firm Morrison Foerster, according to the firm's website.
Other CFPB alumni now serving the financial industry include Catherine West at Promontory Financial, John Tonetti at JPMorgan Chase, Bart Shapiro at Offit Kurman, Neil Peretz at BillFloat, and Benjamin Olson at BuckleySandler.
There's no reason to posit these men and women served anyone but the public while at the CFPB. But it tells you something about government that our public servants were so well-served by creating new regulations.