The Consumer Financial Protection Bureau began operations last week, as required by the Dodd-Frank Act, but there were few celebrations. Instead, the House of Representatives voted on a bill to restructure the agency while Senate Republicans moved to block confirmation of its first director.
In short, it wasn’t exactly a banner week for the agency with Republicans on Capitol Hill and various industry trade groups trying to blunt its powers.
Nevertheless, the bureau has an ample budget. It is staffed and ready to take on its responsibilities of regulating consumer financial products and policing the marketplace for bad actors.
“Two years ago, the consumer agency was just barely an idea,” said its founder Elizabeth Warren, an Obama appointee. “A year ago it became law. Now this agency is ready to be a cop on the beat for American families,” she said.
The CFPB has already contacted the 110 largest banks to establish lines of communications as it prepares to conduct its first on-site examinations later this year. The examiner staff plans to conduct informational roundtables with the banks in early August.
Community banks with less than $10 billion in assets will continue to be examined for compliance with consumer protection laws and regulations by their prudential regulators. (Congress decided this would be less burdensome for smaller banks not a party to subprime lending and the larger financial crisis.)
As passed by Congress, the CFPB can examine or take enforcement actions against any nonbanks engaged in mortgage lending, brokering or servicing.
The CFPB has already signed a memorandum of understanding with the Conference of State Bank Supervisors to coordinate their examinations of state-licensed firms. The agency likely will identify the largest players and conduct examinations in conjunction with state regulators, according to Joseph Lynyak, a partner at the Venable law firm in Washington.
When it comes to the smaller firms, the bureau will either ask for reports or delegate supervision to state licensing authorities. “I think what you are going to see is a practical approach” as the bureau grows into its shoes, Lynyak said.
But its jurisdiction over mortgage companies is not limited by size. If the agency hears something about a firm large or small, “they can jump anytime they want,” the Venable attorney said.
Meanwhile, the CFPB’s rule-writing powers are limited because it lacks a Senate-confirmed director. This holds true even though Treasury secretary Timothy Geithner is presently serving as the bureau’s acting director.
While it can interpret and enforce existing consumer regulations, the bureau cannot rewrite the Truth in Lending Act, or RESPA regulations, which means efforts to merge the good-faith estimate and TILA disclosures are stillborn, at least for now. (Earlier in the year the CFPB won praise from consumer and industry groups for prototype mortgage disclosures it developed and tested.)
Because it has no director, that means the industry will be stuck with current GFE disclosures promulgated by HUD, at least for a while.
It is difficult to tell how long the impasse over the CFPB restructuring and confirmation will last. In nominating former Ohio attorney general Richard Cordray to be the first director, President Obama signaled he would resist any restructuring. “I will fight any efforts to repeal or undermine the important changes that we passed,” said the president.
The president passed over Warren for Cordray because she had become such a lightning rod to Republicans. But Cordray’s nomination didn’t blunt Republican efforts to convert the CFPB into a five-member commission and subject it to the congressional appropriations process.
Republicans claim this restructuring is needed to make the new bureau more accountable to Congress. It will also make it more susceptible to industry pressure. (Roughly 44 Republican senators have pledged to block Cordray’s confirmation unless the president bends on restructuring.)
“Until President Obama addresses our concerns by supporting a few reasonable changes, we will not confirm anyone to lead it,” said Sen. Richard Shelby, R-Ala.
The White House claims the new agency needs to be independent to do its job and protect consumers. The bureau is currently funded by the Federal Reserve under a formula spelled out in the Dodd-Frank Act. Starting up the bureau with a staff of 400 has cost $60 million so far.
As a principal author of the DFA, Rep. Barney Frank, D-Mass., claims Senate Republicans are abusing the confirmation process. He is urging the president to make a recess appointment to install Cordray as director, but that avenue of attack appears unlikely.
The Senate cannot officially recess in August unless it is approved by the Republican-controlled House. Such approval is not expected.
