Watchdog Unleashed: What consumer financial protection looks like
On Thursday, January 5, President Obama enabled the Consumer Financial Protection Bureau (CFPB) to take two giant and bold steps forward when he appointed Richard Cordray as the CFPB’s first director and launched the nation’s first federal nonbank supervision program.
After almost a year of partisan resistance to the appointment of its director, the CFPB is now fully staffed and ready to protect consumers. Its first target? Non-Banks.
Last week the agency released to the public its Mortgage Origination Examination Procedures, which detail the way CFPB will regulate independent lenders, brokers, servicers, and others unaffiliated with banks and depository institutions in the mortgage market.
The procedures build on groundbreaking procedures first announced in October by the agency and promise to reign in clandestine activities previously unregulated in the mortgage market--including those enacted by many of the largest subprime lenders during the housing bubble.
Cordray, who served as Assistant Director of Enforcement for the agency since its inception, got the nod to assume directorship through a controversial recess appointment. The recess appointment, one of 28 made by Obama since 2009, came in response to six months of stall tactics used by the Senate who vowed not to confirm any of Obama’s political appointees.
The appointment of Cordray gave the agency legal authority to implement the federal nonbank supervision program, a program whose new responsibility required a director.
Speaking of his appointment and the agency’s new initiative for the first time before an audience at the Brookings Institute, Cordray said,
“Now, for the first time, we can exercise the full authorities granted to us under the new law. That is the specific difference that having a director makes. Today, we are launching the Bureau’s program for supervising non-banks. We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have largely escaped any meaningful federal oversight.”
The agency also appointed Raj Date (pictured left), who formerly served as Special Advisor on the CFPB, to serve as Deputy Director of CFPB and Kent Markus, who served as Cordray’s Deputy Assistant, to serve as Assistant Director of Enforcement, the position vacated by Cordray.
With its leadership in place the CFPB, with about 700 employees, seems ready to not only continue its listening tour throughout the country, but also start placing new rules for road of finance.
WHAT IS THE CFPB?
Think of the CFPB as a newly planted hulk of a tree with six distinct roots. The trunk of CFPB comprises Director Cordray. Its first root handles all executive and administrative duties. Its second, perhaps most nurturing root is dedicated to consumer education and engagement while another root handles all research related to markets and regulations. Two other roots serve to advise the agency both internally on legal matters and externally with media and other external communications. Its final root, which made headlines last week with the launch of regulating non-banks, is perhaps the most muscular root and is dedicated to actually supervising and enforcing the fair lending and equal opportunity activities of large and non-banks.
“One of our primary objectives is to bring clarity to the financial markets,” said Cordray of his agency’s efforts. “People have a hard time understanding the terms of a deal when they have to pore over reams of fine print. So we launched our Know Before You Owe campaign, to provide consumers with easy-to-understand disclosures that make clearer the prices and risks of financial products right up front. After all, two basic premises of a well-functioning market are: first, that buyers and sellers understand the terms of the deal, and second, that buyers are able to compare possible alternatives. Honest businesses want to compete in such a market, and they are satisfied to win market share based on fair competition and excellent customer service, not through deception or fraud.”
Since CFPB assumed the consolidated authority of seven other agencies for policing abuses in consumer financial products like credit cards and mortgages, in particular the responsibility for enforcing the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), signed by the President in 2009 the agency has begun pushing credit card providers to simplify their forms in order to make sure consumers can better understand the fees and costs associated with credit.
Credit cards are the most commonly used form of consumer credit. Nearly 514 million credit cards are in circulation in the United States and represent about $700 billion in outstanding household debt that averages to more than $6,000 per household, according to Deputy Date.
The agency has also launched other efforts under the moniker “Know Before You Owe” regarding loans to senior citizens, students and military families, credit cards, credit scores and mortgages.