The dust hasn’t settled on the newly created US Consumer
Financial Protection Board, the uber-regulatory agency borne of the
Dodd-Frank financial regulatory overhaul. But already, opponents of
the agency have vowed to wreak political vengeance on it even as
its first substantive regulations hit the industry. Charles Davis
reports
The legislation behind the launch of the Consumer
Financial Protection Board has been touted as the most sweeping
change to financial regulation in the US since the Great
Depression.
Go deeper with GlobalData
Elizabeth Warren – President Obama’s
hand-picked choice for the directorship of the agency – lost little
time in yielding to political realities after it became obvious
that Republicans – and more than a few Democrats – were willing to
stymie the agency’s operations through attempts to change its
appropriations structure and other parliamentary stonewalling
tactics lest she be named to the permanent director slot.
Warren sauntered off to run for the Senate in
Massachusetts.
Now a full Senate vote on the nomination of
former Ohio Attorney General Richard Cordray as the agency’s first
director has set the stage for a fresh round of political
gamesmanship, as Republicans vow to derail his nomination as
well.
In the interim, Raj Date, a former banker
serving as the temporary head of the CFPB, said at a conference in
Washington in September that the agency is readying a series of new
regulations.
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By GlobalDataForemost amongst them is a new rule Date said
would be promulgated early next year requiring lenders to gauge
whether homeowners are capable of repaying their mortgages.
The CFPB has also announced plans to revamp
mortgage disclosure forms that baffle prospective home buyers. The
bureau introduced two prototypes for a simplified, one-page form
that would combine existing documents. The bureau is now reviewing
comments on its plan and could finalize the new forms by next year,
Date said.
It’s been nearly six months since the CFPB’s
rule-writing powers were triggered on the July 21 one-year
anniversary of the Dodd-Frank Act becoming law. The bureau is
empowered to write new rules for Wall Street, examine the books of
the nation’s 110 largest banks and enforce all of its
regulations.
The agency also will handle consumer
complaints about banks, credit cards, mortgage lenders and
investment firms.
Even if it were born into an environment of
bipartisan idealism, the CFPB’s task would still be daunting. The
agency is tasked with writing rules for the mortgage lending
sector, credit card issuers, credit score rating groups and the
retail banking industry – powers currently spread amongst dozens of
federal agencies.
Credit card issuers will be watching warily as
the CFPB must eventually turn its attention to creating new rules
for credit card issuers and servicers beyond those established by
the 2010 credit card reforms that already have proven highly
controversial.
The big difference is that when the CFPB’s
rules are written, the organisation will have legal authority to
punish credit card issuers for illegal practices.
The law also gave the CFPB power to regulate
credit scoring companies. Its initial report on credit scoring
examined the different credit scoring models used by banks and
other lenders and how those different models affect a consumer’s
ability to get credit.
The report noted rather critically that
consumers are often sold different scores than the ones received by
lenders. The new law also requires companies that reject applicants
because of credit scores to disclose the score to the consumer, and
the CFPB will have to bring precision to that rule in the coming
months.
Much of the political wrestling to come likely
will deal with the scope of the agency’s power. The CFPB will try
to consolidate regulatory power over debt consolidation firms, debt
collectors, prepaid money card issuers, money transmitting services
and private education lenders.
None of these entities are mentioned directly
in the law creating the agency, so serious regulatory battles loom
ahead.
Congressional Republicans continue to battle
the agency, calling for a complete overhaul of the bureau’s
authority, structure and funding, with the goal of tightening its
funding by removing it from the independence of the Federal Reserve
and placing it under Congressional appropriations.
Some prominent Republicans also want to change
the CFPB’s makeup from one director to a board of five directors
with input from those in the industry.
The stalled nomination process for Cordray is
emblematic of just how entrenched the sides are, and of the
bare-knuckle nature of the debate. Republicans have vowed to stall
the nomination, hoping to bog down the agency: Because it lacks a
director, the agency is not allowed by the law to supervise payday
lenders, private student loan companies and other non-bank
lenders.
Sensing a political opening, Senate Democrats
have highlighted a small office within the CFPB that assists
members of the United States military with consumer protections to
label the GOP as tone-deaf to the concerns of soldiers and their
families.
The White House underscored that message in
early November, hosting a conference call with reporters to argue
that stalling the Cordray nomination emboldens payday lenders that
might take advantage of members of the military and their
families.
The convenient fact that the office is run by
Helen Petraeus – wife of CIA Director Gen. David Petraeus, a widely
respected former military leader with broad support from
Republicans – only heightened the political theatre.
“I’m very eager for the day when our non-bank
supervision team can, if I can use an analogy, stop circling the
airfield and get permission to land, and start their work,” Helen
Petraeus testified before the Senate Banking Committee. “Confirm a
director for us.”
Republicans, apparently unmoved, vowed to
refuse to confirm a new agency head until the Obama administration
replaces its director with a five-member commission and gives
federal banking regulators more veto power over the CFPB’s
decisions.
President Obama, meanwhile, has made it clear
that he is unwilling to revisit any of the CFPB’s powers. The
standoff will probably keep the agency leaderless until after the
2012 presidential election, barring a political miracle.
Meantime, it has emerged that the CFBB has akready hired 700
people after conducting a three month hiring spree.
On early task for staff has been to sift through 22,000 received
public comments on mortgage disclosure forms proposed by the
CFPB.
