When the new Consumer Financial Protection Bureau begins operations on July 21 it will be a headless wonder, albeit one with lots of clout. At press time, President Obama hadn’t named a permanent director for the CFPB. However, that won’t prevent the bureau from issuing regulations and examining certain large financial institutions.
The bureau, an independent agency housed inside the Federal Reserve, has already begun laying the groundwork for how it plans to exercise its responsibilities. It will be enforcing rules currently enforced by seven federal agencies, including the NCUA.
There are, however, limits.
Until the CFPB has a permanent director, Treasury Secretary Tim Geithner is responsible for overseeing its operations. Without a director in place, the bureau won’t be allowed to assume all of its powers, including the regulation of nonbank entities, such as payday lenders.
That’s a special concern for credit unions, who often serve the same low-income and underserved populations that are the target markets of the payday lenders. Those lenders are subject to less regulation than credit unions.
NAFCU Executive Vice President Dan Berger recently wrote Elizabeth Warren, who has been coordinating the set up of the bureau, that his association “supports full and robust regulatory oversight for payday lenders, foreclosure relief services and other financial service providers that have too often flown below the regulatory radar. The agency has authority to examine entities involved in specific activities, such as mortgage lending, payday lending or private education loans.”
He urged the bureau use its power to “capture the activities of nondepository institutions and subject them to the same rigorous oversight that depository institutions currently undergo.” Despite its inability to regulate those portions of the financial services industry, the 400-employee bureau will still have plenty to do.
Among its responsibilities will be examining the consumer practices of depository institutions with assets of $10 billion or more, including Navy Federal FCU, Pentagon Federal FCU and State Employees Credit Union of North Carolina. All other credit unions are subject to the regulations issued by the CFPB, but the enforcement will be done by either the NCUA or their state regulator, depending on what kind of charter they have.
The bureau announced on July 12 that the enforcement of larger financial institutions “will be an on-going process of pre-examination scoping and review of information, data analysis, on-site examinations, and regular communication with regulated entities, prudential regulators, and as well as follow-up monitoring.”
It plans to use its examinations to determine whether the financial institution is able to “detect, prevent, and remedy violations that may harm consumers.”
The agency also plans to merge the disclosure forms required to be given to borrowers when they close on a house. Currently, there are separate forms required, one to comply with the Real Estate Settlement Procedures Act and one to meet the requirements of the Truth in Lending Act.
The agency has already issued draft forms, and consulted industry and consumer groups including CUNA and NAFCU, and will conduct focus groups in the months ahead.
Warren has said she wants the forms to contain enough information so that consumers are aware of all the costs for which they will be responsible.
She has said another of the bureau’s goals is to ensure that financial institutions disclose the cost of credit so that consumers an easily compare among different products.
The bureau also has a department aimed at trying to decrease the incidents of military personnel and their families being taken advantage of by unscrupulous financial services firms.
Warren, who came up with the idea of the bureau and has led its set up, probably won’t have the chance to set to run it.
The bureau was created as part of the financial overhaul bill passed by Congress last year. Almost all congressional Republicans opposed the measure and several have made proposals to restructure the agency and Senate Republicans have promised not to let any director be confirmed until some of those changes are made.
There is also a dispute over the bureau’s funding. The law said the Fed can transfer up to $500 million annually, based on the request from the CFPB director. However, a key House committee approved a spending plan for the fiscal year that starts Oct. 1 that would limit the Fed’s transfer to $200 million.
While the existence of the CFPB will take some responsibilities away from the NCUA, the agency’s Office of Consumer Protection will still have plenty to do. It handles insurance, bylaw and field of membership issues and also deals with complaints from credit union members about their credit union.
NAFCU President/CEO Fred Becker and NCUA Chairman Debbie Matz have had an exchange of letters, which included a request by Becker to have the office not disclose regulatory violations, if the office found that any occurred.
Matz interpreted that as a request to “conceal” information. Becker wrote that this was an “unfortunate and erroneous” interpretation. The office’s budget for 2010 and 2011 is $4.4 million and has spent $3.2 million. It has a budget for 37 full-time equivalent employees.