RPC Reg Spotlight April 12, 2011

 

UPDATE:

 

In the Fiscal Year 2012 Financial Services Appropriations bill, passed in committee on June 23, CFPB’s budget – which comes directly from the Federal Reserve – is reduced from $500 million to $200 million. Starting in 2013, the entire budget will be subject to the appropriations process.

 

Regulatory Action in the Spotlight:

 

The Consumer Financial Protection Bureau (CFPB), an independent entity within the Federal Reserve System, will administer, enforce and implement Federal consumer financial protection laws and, among other powers, will have authority to: “protect consumers from unfair, deceptive, and abusive practices when obtaining consumer financial products or services.”

 

Adverse Effects:

 

  • Increase costs to consumers.
  • Create burdensome new regulations.
  • A new bureaucracy with an annual budget over $500 million.
  • Regulate financial services not involved in the financial crisis.
  • Too much centralized power.

 

Response of the Obama Administration:

 

In the opinion of the Administration, the financial crisis that affected millions of Americans was caused, in part, by the failure of the government to protect consumers from “unscrupulous” providers of mortgages, credit cards, etc.  The CFPB was established as a new financial agency to focus directly on consumers, rather than on bank safety and soundness or on monetary policy. The new agency will supposedly heighten government accountability by consolidating in one place responsibilities that had been scattered across the government.

 

Impact on the United States:

 

  • The CFPB will have authority to supervise, examine, and take enforcement action with respect to (i) depository institutions with more than $10 billion in assets and (ii) nonbank mortgage industry participants and other CFPB designated nonbank providers of consumer financial services.  Depending on the approach taken by the CFPB, it has the potential to have a very significant impact on what consumer financial services will be available in the U.S. and the manner in which they will be provided.   The availability of checking accounts, CD’s, and debit cards were not causes of financial instability which Dodd-Frank is supposed to address.
  • CFPB will have broad authority to curb practices it finds to be unfair, deceptive and abusive. What constitutes "abusive" behavior may be very broadly defined and can create an environment conducive to increased litigation.  This is likely to be exacerbated by the fact that State Attorneys General are authorized to enforce Federal consumer laws transferred to and issued by the CFPB.
  • CFPB gains exclusive rulemaking authority over a wide range of Federal consumer protection laws. Although the CFPB will be required to consider the potential benefits and costs for financial institutions and consumers of a proposed regulation and to consider and address any objections from other Federal regulators, the Financial Stability Oversight Council (FSOC) will have authority to set aside a CFPB regulation in only very limited circumstances.
  • The CFPB will write and issue new consumer protection rules, but the prudential regulatory agencies have primary examination and enforcement authority for depository institutions with $10 billion or less in assets.  The CFPB has the right to include its examiners on a "sampling" basis in examinations conducted by the prudential regulators and is authorized to give those agencies input and recommendations with respect to consumer protection laws and to require reports and other examination documents.  This effectively grants the CFPB regulatory authority over institutions under $10 billion in assets.
  • The CFPB will be governed on a single Director model.  This concentrates the power to create and adopt rules with a single powerful director, possibly with harmful unintended consequences.  Richard Hunt, President of the Consumer Bankers Association, supports a commission-led model, instead of a single Director.  “A commission or board has been effectively used in various forms by a large number of federal agencies including: the Federal Reserve Board, the Federal Trade Commission, the Federal Deposit Insurance Corporation, and the Securities Exchange Commission. Even the Consumer Product Safety Commission, which was a model for the creation of the CFPB, is headed by a commission. The benefit a commission or board provides is the opportunity for different perspectives to be brought to bear on an issue so that more than one side can be discussed…It is worth noting the House-passed version of the bill which became Title X of the Dodd-Frank Act included a commission as part of the leadership of the consumer protection agency that was the precursor to the CFPB. This is a better model for leadership of a newly formed agency with such unprecedented power and resources.”
  • Elizabeth Warren has been named Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB.  Although not appointed as Director, thereby not subject to Congressional confirmation, her mission will be to establish the CFPB for its July 2011 roll out.  A controversial figure advocating massive regulatory intervention in our financial system, Ms. Warren has already had an ongoing role in settlement talks with big banks and other mortgage servicers over widespread allegations of improper foreclosure practices. Although Ms. Warren insists that her agency currently has no legal authority to negotiate a settlement, she had been active in “advising” various negotiators on the deal, since the CFPB will have regulatory responsibility for mortgage companies starting in July.
  • The CFPB is an autonomous agency funded by transfers from the Federal Reserve, which itself is a self-financing governmental entity.  CBO estimated that the cost for the CFPB over the 10-year period would be $5.9 billion.

 

In Closing:

 

The CFPB has the potential to affect almost every person in the United States with its ability to regulate and control financial products.  Its model of governance, a single Director subject to little oversight, creates conditions ripe for a “rogue” bureau, with a radical agenda impeding the economic recovery.

 

Relevant Legislation:

 

Policy Committee Chairman Tom Price introduced an Amendment to H.R. 1, the Full-Year Continuing Appropriations Act, 2011 to defund the CFPB.

 

Financial Services Chairman Spencer Bachus introduced H.R. 1121, the Responsible Consumer Financial Protection Regulations Act of 2011, which would change the leadership structure of the CFPB so it is governed by a bipartisan commission rather than a single director appointed by the President. 

 

Rep. Randy Neugehbauer introduced H.R. 1355, the Bureau of Consumer Financial Protection Accountability and Transparency Act of 2011, which would amend the Consumer Financial Protection Act of 2010 to move the Bureau of Consumer Financial Protection into the Department of the Treasury.