WASHINGTON — Dismissing concerns about the agency's authority, Consumer Financial Protection Bureau Director Richard Cordray immediately launched a program to supervise nonbanks such as mortgage lenders and payday lenders.
In a speech in Washington — his first as director -- Cordray said that now that a permanent agency chief is in place, the CFPB "can exercise the full authorities granted to us under the new law."
"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," Cordray said in remarks prepared for delivery at the Brookings Institution.
President Barack Obama on Wednesday installed Cordray through a recess appointment, even though Senate Republicans had managed to keep the Senate in "pro forma" session through the traditional holiday recess.
Industry observers continue to question whether Cordray's recess appointment was valid, and whether the bureau has the power to regulate nonbanks without a Senate-confirmed director.
But Cordray defended the agency's authority on Thursday. He said the new supervision program may be a challenge for businesses which have not been subject to any federal oversight, but said clear standards of conduct are essential to ensure that all financial services providers play by the rules.
"With our full authorities in hand, we now have a variety of tools to address the problems facing consumers," he said. "We will succeed in our job if financial markets become more fair, more transparent and more competitive. To make that happen, we need to consult the best data and information we can to really understand what is happening in the market and how consumers and businesses are faring."
Under Dodd-Frank, the bureau has the authority to oversee nonbanks, regardless of size, in three markets: mortgage companies, payday lenders and private student lenders.
It may also regulate large nonbanks in other markets, but must first define who those players are.
The agency sought public comment on the "larger participant" rule last summer, and said it plans to propose its initial rule "soon."
The CFPB has identified six markets for potential inclusion: debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities.
Until the rule is finalized, the CFPB will only be able to supervise institutions in the mortgage, payday and student lending markets. The agency also has the authority to supervise any nonbank that it believes poses a risk to consumers; it plans to propose rules that establish procedures for identifying those companies going forward.
The approach to exams will be the same for banks and nonbanks, the agency said in a press release. Examiners will use the same field manual released in October, and nonbanks will be notified of upcoming exams. All examiners will be trained in both nonbank and bank supervision, and will be spread throughout the country.
In his speech, Cordray said parity of regulation between banks and nonbanks was critical, saying lax oversight particularly of nonbank financial companies helped lead to the financial crisis.
"We will make sure that large banks and nonbanks are held to the same standards," Cordray said. "In the run-up to the financial crisis, many unsupervised firms led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers."
He also signaled that consumer complaints would help dictate where the CFPB focused, citing several the agency has already received.
"In our first six months, our team has been answering calls and collecting emails from American consumers," he said. "Their stories illustrate the kinds of issues people are dealing with around the country. We heard from Mary in Louisiana, who took out a payday loan — a short-term, high-cost loan — that turned into a long-term, exorbitantly expensive loan when she was unable to pay it off."
He said the agency's job will be to ensure those kind of abuses no longer take place.
"In just a short time, we have heard thousands of these kinds of stories. Some are outrageous," he said. "The problems are welling up everywhere, from small towns to big cities, from coast to coast. These nightmares are happening to people from all walks of life — from people who have fallen on hard times to people who still consider themselves financially secure. They do not expect any special favors. They just want a fair shake. They want a consumer financial system that actually works for consumers. That is exactly what the consumer bureau is here to do."
The agency has also signed memoranda of understanding with state regulators, including the Conference of State Bank Supervisors, to share information.
Going forward, CFPB said it plans to publish additional exam procedures tailored to the types of consumer products offered by nonbanks.