The recess appointment of Richard Cordray on Wednesday as director of the consumer bureau finally gives the fledgling agency the legal standing to supervise those types of financial enterprises, something it has lacked since the bureau was created with the signing of the Dodd-Frank financial regulation act in July 2010.
Although the Dodd-Frank law authorized the consumer agency to regulate the so-called nonbank financial companies, which previously had little supervision, the law was purposely written such that the bureau could not invoke its powers until it had a director.
The bureau had taken responsibility for existing regulations on consumer products at banks and thrifts, it was not able to write new regulations for banking products like mortgages and credit cards until it had a permanent leader.
“Now, with a director, the C.F.P.B. can exercise its full authorities — with respect to both banks and nonbanks — to help those markets operate fairly, transparently, and competitively,” Mr. Cordray, a former Ohio attorney general, said in a blog post Wednesday on the bureau’s Web site.
Most of the nonbank financial companies, he said, “had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers.”
Mr. Cordray was appointed as the enforcement director for the consumer bureau by Elizabeth Warren, who served as a special adviser to President Obama for overseeing the startup of the agency. Though Ms. Warren conceived the bureau, championed it in Congress and was the president’s pick to get it running, she never had the agency’s full powers because she was never formally nominated by the president and confirmed by the Senate.
The bureau has begun some duties like a banking supervision program by placing regulators at many of the nation’s largest banks to review mortgage lending and consumer banking fees.
The consumer bureau director also can influence banking policy as a member of the board of the Federal Deposit Insurance Corporation, which itself is awaiting Senate confirmation of three presidential nominees to its board.
The consumer bureau focuses on “unfair, deceptive or abusive” acts or practices in products like private education loans and prepaid charge cards and at companies like mortgage servicers, which have come under harsh criticism for their foreclosure practices since the housing bubble burst.
Payday lenders, the target of much of the criticism directed at nonbank financial companies, said Wednesday that they would work with the consumer bureau. D. Lynn DeVault, chairwoman of the Community Financial Services Association of America, a trade group for payday lenders, said that more than 19 million Americans have used the companies for short-term loans, which she said were simple, transparent and well understood by consumers.
The Obama administration has not always agreed. It said last month that short-term payday loans can carry interest rates of more than 400 percent, if measured on an annual rate, and fees are not always clearly disclosed.
Consumer advocacy organizations hailed Mr. Cordray’s appointment. “The C.F.P.B. will no longer have to fight mounting consumer financial abuses with one arm tied behind its back,” said Travis B. Plunkett, legislative director for the Consumer Federation of America.
But some banking and business organizations objected. The American Banking Association, which represents banks of all sizes but generally is considered the voice of the largest institutions, said the appointment “puts the bureau’s future actions in constitutional jeopardy, threatening its work, complicating compliance efforts of banks and further undermining the entity’s authority and credibility.”
Many community banks and credit unions have been eager to see the agency up and running because they often compete against nonbank mortgage lenders and other loan companies.
Thomas J. Donohue, president of the U.S. Chamber of Commerce, said its members “strongly believe it’s important to protect consumers from predatory lending, financial scams and fraud in the marketplace.” But he cited the agency’s structure and lack of oversight as its main problems.
The consumer bureau is housed within the Federal Reserve but was given the power to determine its own budget, without Congressional appropriation. The law provides the agency with a budget of up to 11 percent of the Fed’s total 2009 operating expenses, or up to $406 million this year.
Senate opponents want the director replaced with a five-member board similar to those of other regulatory agencies and have refused to consider voting on any nominee until the structure is changed. Currently, any rules that the director puts in place can be overturned only by a vote of two-thirds of the Financial Stability Oversight Council, a 10-member board created by Dodd-Frank law to monitor the financial system.
Article source: http://feeds.nytimes.com/click.phdo?i=8a92f69d76da97003ea9fde833206260
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