June 17, 2024

Obama Fights for Confirmation of New Consumer Agency Chief

WASHINGTON — The White House has undertaken an extraordinary push this week to promote the confirmation of a director for the new Consumer Financial Protection Bureau, despite signs that Senate Republicans will not budge from their vow to block any nomination to the post unless Democrats agree to overhaul the agency’s structure.

“Does anyone here think the problem that led to our financial crisis was too much oversight of mortgage lenders or debt collectors?” President Obama asked his audience during a speech on Tuesday in Kansas. To amplify that message, White House officials in recent days have conducted several briefings with reporters and arranged special access for print and television journalists from seven states where the administration thinks it might sway moderate Republican senators to break ranks.

The goal is to get the necessary 60 votes on Thursday to end Senate debate on the nomination of Richard Cordray, a former attorney general of Ohio, to be the consumer agency’s first director. Forty-five of the 47 Senate Republicans signed a letter in May vowing not to allow a vote unless Congress was given more oversight of the agency, including budgeting authority.

The consumer bureau, a legislative response to the predatory mortgage lending practices that many critics think were partly responsible for the financial crisis, was established as part of the Dodd-Frank financial regulatory act, which was signed into law in July 2010.

The law gives the consumer agency authority over nonbank financial companies that were barely regulated, if at all — entities like payday lenders, credit reporting agencies, mortgage companies and debt collectors. Those institutions have been accused of preying on lower-income families, prodding them into mortgages with escalating interest rates, charging high rates of interest for short-term loans and using abusive debt collection methods.

The law vests that power in the agency’s director, however, rather than the agency itself — a departure from normal bureaucratic structure. After the law was enacted, the inspectors general of the Treasury Department and the Federal Reserve Board issued opinions saying the bureau could not assume its new powers without a confirmed director in place.

“It’s not how we would have done it, to be sure,” Neal Wolin, deputy Treasury secretary, said on Wednesday. “But we knew from enactment that in order to get these additional powers there would need to be a director confirmed.”

Republicans, led by Senator Richard C. Shelby of Alabama, have said they think the agency is essentially unaccountable to anyone, including Congress, in part because it has the authority to set its own budget, drawing on money from the Federal Reserve and therefore not subject to Congressional appropriations.

Republicans have also pressed for the single director to be replaced with a board, much like those governing the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. And the critics want to ease the ability of banking regulators to overrule any regulations drawn up by the consumer bureau that might interfere with the safety and soundness of the banking system.

“We support strong and effective consumer protection,” Mr. Shelby and the other Republican senators wrote to Mr. Obama in May. “The present structure of the Consumer Financial Protection Bureau, however, violates basic principles of accountability and our democratic values.”

White House officials and other supporters of the bureau maintain that there is plenty of accountability in the bureau’s structure. The director must report to Congress on its activities twice yearly. There is a cap on its annual budget. And its rules can be overturned by a two-thirds vote of the Financial Stability Oversight Council, which includes the heads of the major financial regulators.

Several Democratic senators said Wednesday that the aims of their Republican colleagues were clearly out of step with the mood of the nation. Senator Robert Menendez, a New Jersey Democrat, accused Republicans of wanting to protect Wall Street rather than consumers.

The White House is specifically focusing on voters in Alaska, Indiana, Iowa, Maine, Nevada, Tennessee and Utah, hoping they will contact their senators and urge them to allow a vote on the nomination. On Thursday, Mr. Obama will be interviewed at the White House by local news anchors from Las Vegas, Indianapolis, Memphis and Portland, Me.

Senator Scott Brown, a Massachusetts Republican, did not sign the Republicans’ May letter and has already said he will vote to end debate on Thursday. Senator Lisa Murkowski of Alaska, the other Republican who did not sign the letter, has not declared her position. A spokesman for her did not respond to an inquiry on Wednesday.

One of the moderate Republican senators from the target states, Susan M. Collins of Maine, is not biting, at least so far.

“I actually voted for the Dodd-Frank bill, but I am completely opposed to appointing a nominee to head this bureau until we correct the very serious structural flaws that are in the bill,” Ms. Collins said. “This has nothing to do with Mr. Cordray. He’s clearly a qualified individual with a good reputation. It has everything to do with accountability for how money is spent in government.”

Carl W. Tobias, a law professor at the University of Richmond in Virginia, said the Republicans’ strategy of denying an appointment because they dislike the way a law was structured carried a dangerous precedent.

“It’s not typical and not very desirable in lots of ways,” he said, “because that would mean no legislation is good after the Congress that passed it.”

Without the 60 votes, Mr. Obama’s options are limited. He can try for a recess appointment, but Congress has blocked that avenue before and could be expected to do so again. The White House could make some horse-trading promises in exchange for future support of some senators’ favorite issues. Or it could agree to the structural changes that Republicans are seeking — something Mr. Obama said Tuesday that he would never do.

“Consumers deserve to have someone whose job it is to look out for them,” he said. “I intend to make sure they do. And I want you to hear me, Kansas: I will veto any effort to delay or defund or dismantle the new rules that we put in place.”

Article source: http://feeds.nytimes.com/click.phdo?i=c7d8cb1f813de19813c63287c79bde99

DealBook: Moody’s Sees Benefits for Banks From Consumer Bureau

Richard Cordray, President Obama's choice to lead the new Consumer Financial Protection Bureau.Michael Houghton for The New York TimesRichard Cordray, President Obama’s choice to lead the new Consumer Financial Protection Bureau.

The new Consumer Financial Protection Bureau has ignited fear on Wall Street. But many banks may eventually benefit from the regulator’s careful watch, according to a new report by Moody’s Investors Service.

The bureau, Moody’s said, could be the “medicine” that tames the financial industry’s risk-taking ways. Over the long haul, safer lending practices “could limit future credit and litigation costs for the firms,” said Moody’s, one of the largest credit rating agencies.

The consumer bureau, which formally opened its doors last week, can write new rules for financial firms, examine their books and issue enforcement actions. A chief component of the Dodd-Frank financial regulatory law, the agency will focus on mortgages and credit cards, among other financial products.

“The stricter policing of consumer lending products and services will ultimately make banks safer by steering them away from riskier products such as subprime mortgages,” the report said.

While the bureau will oversee the nation’s 110 largest banks, it also can take aim at some less-regulated corners of the finance industry, including tens of thousands of payday lenders and mortgage companies. This authority, which kicks in once the Senate confirms a director to lead the agency, is a potential big win for the banks.

“Once the bureau gains purview over nonbanks as well, it will level the playing field by applying the same controls and constraints to nonbanks as to banks,” according to the report.

President Obama last week nominated Richard Cordray, the bureau’s enforcement chief, to the director spot. Republicans have indicated they will oppose the nomination.

Once the consumer bureau does receive a leader — and oversight over the nonbank lenders — it “will likely eliminate or at least significantly mitigate the competitive pressures that caused banks to engage in a ‘race to the bottom.’”

Of course, as the bureau threatens to crimp banking fees and overhaul lax mortgage servicing standards, bank profits could sink.

“Certain elements of the C.F.P.B. are credit negative for large U.S. banks, in particular those with substantial mortgage operations,” Moody’s said. “Such firms are likely to be confronted by new national standards and attendant compliance-related costs related to mortgage servicing.”

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Mortgage Companies Settle Suits on Military Foreclosures

The Justice Department announced on Thursday that it had simultaneously filed and settled lawsuits against the two companies — a subsidiary of Bank of America formerly known as Countrywide Home Loans Servicing, and Saxon Mortgage Services, a subsidiary of Morgan Stanley.

The companies were accused of knowingly and repeatedly violating the Servicemembers Civil Relief Act, a federal law that extends an array of financial and legal protections to military personnel. Specifically, the companies were accused of ignoring a provision of the law that required them to get court orders before foreclosing on active-duty service members.

Without admitting wrongdoing, the former Countrywide unit agreed to pay $20 million to approximately 160 victims of illegal foreclosures from January 2006 to May 2009. It also agreed to reimburse victims of any other illegal military foreclosures found to have occurred from May 2009 to the end of last year.

Further, it promised to upgrade its training and report future violations of the civil relief act to the Justice Department.

Although most of the improper foreclosures began before Bank of America acquired Countrywide, “it is our responsibility to make things right,” said Terry Laughlin, an executive vice president at the bank. He added, “These errors are not acceptable, and we certainly regret them.”

According to Thomas E. Perez, assistant attorney general for the Justice Department’s civil rights division, the Countrywide settlement is “easily the largest amount ever recovered“ by the Justice Department for violations of the civil relief act.

Saxon was accused of illegally foreclosing on approximately 18 service members, “some of whom were severely injured in the line of duty or suffer from post-traumatic stress disorder,“ according to Mr. Perez.

Without admitting wrongdoing, Saxon agreed to pay $2.35 million to victims of those foreclosures, made from January 2006 to May 2009. It also agreed to pay the victims of any subsequent wrongful military foreclosures, through the end of last year, and to upgrade its training programs.

“First and foremost, we want to apologize to those military families that were affected by any mistakes made in the foreclosure process,” said Mark Lake, a spokesman for Morgan Stanley. “Our servicemen and women deserve the highest level of customer service.”

He said that Saxon “has taken meaningful steps to ensure it has appropriate policies and procedures in place to comply fully” with the civil relief act.

Both companies agreed to repair any damage their improper foreclosures had caused to the credit scores of the affected homeowners.

There have been widely publicized violations of the civil relief act since well before January 2006, the starting date for these settlements. Indeed, the Saxon investigation was based on a complaint by Sgt. James B. Hurley, an Iraq veteran who lost his home in western Michigan in an improper foreclosure in 2005. Saxon and its co-defendant in that case, Deutsche Bank, reached a confidential out-of-court settlement with the Hurleys early this year.

Mr. Perez said the 2006-9 period was chosen because it encompassed the sharp spike in national foreclosure activity that began in late 2006.

The settlement terms expand that window to the end of 2010.

The two mortgage companies have set up a direct hot line for service personnel who believe they are eligible for relief under the settlements. That number is (800) 896-7743, mailbox 6 for the former Countrywide unit and mailbox 995 for Saxon.

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Bucks: When Banks Impose Homeowner’s Insurance

Paul Sullivan writes this week in his Wealth Matters column about something called “force-placed insurance.” It is the insurance that a mortgage company buys when it believes the owners of a house no longer have insurance on the property.

But as Mr. Sullivan found out, mortgage companies are often imposing the insurance on homeowners already having trouble making their mortgage payments. Because the insurance is more expensive than homeowners’ insurance available on the open market, the additional costs have been sending some homeowners into foreclosure.

In other cases, particularly in areas prone to natural disasters, Mr. Sullivan reports, homeowners have been getting notification that they lack flood or hazard insurance even if they already have the coverage or don’t need it.

His main advice for anyone who has received these notices is to act quickly to prove to the mortgage company that the insurance is not needed.

Have you received one of these letters from your mortgage company? What was your experience? Mr. Sullivan reported that he got a letter in November from his lender and it took him four months to resolve the issue. Were you able to resolve your dispute more quickly? If so, how?

Article source: http://feeds.nytimes.com/click.phdo?i=e25980d94e0cde9a575f123fdca56991