Much has been made on Capitol Hill of the “unchecked” powers of the new Consumer Financial Protection Bureau and the lack of oversight of its work. Actually, the agency’s powers are quite circumscribed by the provisions of the Dodd-Frank Act that created it.
In most cases, the authority the new 400-person bureau is assuming has been lodged in other agencies such as the Department of Housing and Urban Development, Office of the Comptroller of the Currency, and Department Treasury. So much of the CFPB’s true regulatory authority is not really new – it’s just moved to a new location. With regard to accountability, it is safe to say that the House Committee on Oversight and Government Reform and the Committee on Financial Services are doing a very good job of overseeing the CFPB even before its initial opening. The opportunity to pass judgment on the nomination of Richard Cordray as director will highlight the role of the Senate Banking Committee in the oversight process as well.
The area where the CFPB has the most free rein is not so much in exercising regulatory powers as it is in exercising its access to the media. The bureau is already showing that it intends to use a “bully pulpit” to shine a light on industry practices that it believes are not consistent with the interests of the consumer. As we say in New York, the CFPB is going to be a first-class “noodge” – pushing and cajoling the industry to step up its efforts to simplify its documentation; clarify its fees and charges and modify some of its practices. The bureau’s early actions are instructive in this regard.
First up for the CFPB is credit cards. Dodd-Frank gives the CFPB the authority to oversee a bank’s compliance with the provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. Even before assuming the authority, the bureau is touting the benefits of the CARD Act in changing some banks’ policies on late fees, interest rate increases and balance transfer fees. The bureau intends to staff up over the next year or so to add to the number of examiners who will review compliance.
Also on the bureau’s plate is the regulation and review of banks’ practices in the initiation and servicing of mortgages. The agency is developing model mortgage disclosure documents which it intends to publish as a guide for the industry. The CFPB is also pushing the banks to step up their programs to modify the mortgages of some homeowners. In both of these cases, the bully pulpit is the main tool the agency can employ.
We’ve heard bankers complaining about the cost of compliance and the expected intrusiveness of this burgeoning federal bureaucracy in their business. It is undeniable that there will be significant costs of compliance. What is also undeniable, however, is that the CFPB is a fact of life. And at a time Nobel prize winning economist Paul Krugman is using his column in The New York Times to bemoan the fact that there aren’t more bankers wearing orange jumpsuits, it might make sense for the industry to accept the fact of the CFPB’s existence and turn to the job of demonstrating compliance, and even leadership, in the area of consumer protection. Clearly, the industry would not want to leave the impression in the public mind that government does a better job than the banks themselves of protecting banking customers.
As it flexes its muscles, the CFPB will look for banks to take on to demonstrate their power. Everyone in the industry will be incurring costs and will be subject to intense scrutiny to determine to what degree those costs are being passed on to customers in the form of higher fees.
So in the short term the industry can expect some difficulties in getting in tune with this new regulator.
In the long term a traditional relationship between bankers and their regulators is likely to emerge. Once the regulator establishes a pattern of behavior, the industry will be in a position to get ahead of the curve on key issues and demonstrate anew what we know to be true – that the banking industry understands the value to their business of being customer-focused. When that relationship is established, the CFPB will be part of what keeps the industry in balance.
Peter A. Peyser is a managing principal at Blank Rome Government Relations LLC.