When Sen. Elizabeth Warren (D-MA) began staffing up the Consumer Financial Protection Bureau in 2010 and 2011, she did something that appeared, at first blush, to be highly counterintuitive.
Instead of limiting staff to those with extensive background in consumer activism and regulatory policy, she chose people with places like Deutsche Bank, Morgan Stanley, and Capital One on their CVs.
Those financial institutions were the very entities that the CFPB was supposed to haunt. The agency had been included in financial regulatory reform as a wishlist item for Wall Street-skeptical progressives. And yet, here was Warren—the intellectual godmother of the CFPB—handing out key roster assignments to officials from those very institutions.
Before long, the supply chain was working the other way. As the CFPB carried out its mission during the Obama years, undertaking reforms to practices from aggressive debt collection to payday lending to mortgage finance rules, some of its senior staffers would leave the agency to work in the financial sector, many of them helping major banking and securities firms understand and navigate the rules they’d just helped write. As the agency pursued billions in civil penalties against financial firms, some of its senior officials found themselves on the payrolls of the sort of companies the CFPB was created to scrutinize and hold accountable.
It’s the sort of “revolving door” between government industry that Warren has decried as a progressive stalwart in the Senate and a leading candidate for the Democratic presidential nomination. And it could complicate her efforts to make the CFPB a cornerstone of her White House bid by drawing cries of hypocrisy from campaign rivals.
But beyond the talking points, the hirings also offer an unexpected window into Warren’s approach to governance, suggesting that she’s a shrewder, more pragmatic policymaker than her persona as a populist firebrand indicates.
The CFPB was created in response to the 2008 financial crisis, which resulted in mass mortgage defaults and hammered American debtors. Warren, then a Harvard professor, had dreamt up the idea and became the Obama administration's point person in devising a new agency to serve as a consumer finance watchdog and ensure that borrowers were not being fleeced by the financial institutions on which their livelihoods depended. Warren never actually led the agency, which was created as part of the 2010 Dodd-Frank financial reform law. There were internal White House fears that her presence atop the CFPB would spark immense backlash among Senate Republicans, so she was made a “senior adviser” with heavy sway over its inception and—most critically—early staffing decisions.
“She was monstrously productive from a recruiting point of view,” recalled Raj Date, who served as CFPB’s associate director of research, markets, and regulation. “I grew up around successful recruiting engines—at McKinsey, at Capital One—and I have never seen a human being better at recruiting than her.”
Warren’s central role was evident in a report that the CFPB released in 2011 recapping its creation and launch and the early progress it had made as the nation’s first federal consumer finance watchdog. She wrote a letter of introduction for the report, hailing the “strong foundation” for the agency and pledging, “in the years ahead, the CFPB will work hard for consumers across the country.”
The report identified 21 people in senior CFPB leadership positions that had been instrumental in getting the new agency off the ground. They included some notable names from the financial sector. Date had been a managing director at Deutsche Bank in addition to his prior roles at McKinsey and Capital One. Elizabeth Vale, who oversaw community banks and credit unions at the agency, had been a managing director at Morgan Stanley. CFPB’s chief operating officer, Catherine West, had led Capital One’s credit card division.
While Warren plucked talent from the financial services industries, the relationship became even more intertwined over the subsequent years. Nearly half of the senior officials—nine out of the 21—mentioned in that report would go on to work in financial services, or for law or consulting firms with expertise and clientele in the sector, after their tenure at the CFPB.
Roberto Gonzalez, for instance, served as the agency's deputy general counsel before becoming a partner at the law firm Paul Weiss Rifkind Wharton & Garrison LLP. He “represents financial institutions and other companies in high-stakes litigation, investigations and advisory matters,” according to the law firm’s website, which boasts that he helped “a major U.S. bank in connection with a favorable settlement with the CFPB.”
“Roberto is an extraordinary lawyer with deep knowledge of the broad range of complex issues facing financial institutions, including, specifically, in the areas of financial regulation, DoddFrank, economic sanctions, anti-money laundering and cybersecurity,” the firm’s chairman told Law360 in 2016. “Needless to say, Roberto’s expertise is in high demand today.”
It’s precisely that sort of demand that fuels Washington’s revolving door, and has created a cottage industry of former regulators who cash out to the industries they once regulated. Such moves can create perverse incentives for government employment: Those who go into public service in the hope of landing a lucrative private sector career afterward may be just as willing to side with industry in the hope of future pay as former industry lobbyists and executives who move into government positions.
“In many ways, I find revolving out into industry more problematic than coming from industry,” said Jeff Hauser, the executive director of the Revolving Door Project at the Center for Economic and Policy Research, a progressive think tank, in an interview. “That influences your incentives in office, if you think you’re going to go work in this industry... There’s a willingness to rock the boat that I think is diminished if you want to enter the field that you’d be shaking up.”
Hauser noted, though, that Warren has proposed policies that would have blocked at least some of the career moves that CFPB staffers took into private industries if they had been in effect at the time. That’s something the Warren campaign stressed as well.
“Elizabeth is the leader—Republican or Democrat—in proposing a set of serious anti-corruption reforms and it will be her top priority to make them law,” campaign spokeswoman Saloni Sharma said in an emailed statement. “Her legislation will expand the definition of lobbyists to include anyone paid to influence lawmakers and ban giant companies, banks, and monopolies from hiring former senior government officials for at least four years.”
Warren has also committed to imposing those standards on her administration if she’s elected president, even barring any action on the proposed legislation by Congress.
Warren’s campaign did not address more specific questions about the revolving door between the early CFPB and the companies it regulated. Those questions go to the heart of the dilemma facing policymakers as they look to effectively wield the nation’s regulatory agencies while preventing and rooting out corruption: namely, how to staff the federal administrative apparatus with people who know the issues in their portfolio but are driven by public, not private, interests.
As a presidential candidate, Warren has come down firmly on the anti-corruption side of that dilemma—blocking or at least slowing the revolving door. But that approach can come at the expense of expertise that former industry insiders can offer. It can also preclude the private sector companies from hiring the very regulators who can help them make sense of often complex regulatory regimes and even imbue their industry with a sense of mission.
It’s the latter approach that Warren appears to have embraced in the early days of the CFPB. She often stressed that the agency was drawing talent and expertise from a host of backgrounds, including industry, in an effort to craft a more effective regulatory apparatus.
It’s an approach that Date described as a break from traditional progressive thinking on financial watchdog efforts, which often elevate consumer advocates and lawyers.
“If you want to build and operate these agencies well, it cannot just be a bunch of lawyers,” he said. “This notion that a critical qualification to make policy for an industry is to have never been in it—the idea that you are more capable the less you know—I find that notion, on its face, absurd.”
The other side of the CFPB revolving door had its benefits, too, Date said. The dispersal of people from the agency, who were instrumental in its creation and committed to its mission, into the financial services industry had an evangelizing effect, he said.
"There are lots of reasons where I thought the most important thing longer-term was to take people, a nontrivial number of people, who live what it’s like to be the enforcers and articulators of what the right principles should be, it would be good if you take people who internalized what these principled-based views should be and take that into industry,” Date said. “That’s good. We have suffered from that in consumer finance."