Oh sure, the Consumer Financial Protection Bureau may have seen its first-ever director take office only three weeks ago—but the agency has done anything but sit around waiting for the last six months.
The Obama Administration formally put Richard Cordray into the CFPB's direct job on Jan. 5 via a recess appointment, after months of wrangling with the Senate over confirmation hearings. But Cordray had been the de facto leader of the agency since its inception last July, and the CFPB has been busy preparing its full-court press into the regulatory realm this year.
First up is the republishing of rules from other regulators that oversee financial products; as part of the Dodd-Frank Act of 2010, many of those oversight duties will be centralized into the CFPB. Most legal experts, however, say this process is not much more than administrative housekeeping, merely to lay the foundation for more extensive rules the CFPB will adopt in the future.
“This is expected. It's a normal reorganization of rules. However, this is an entity with a single mission, and a single set of tools to address the mission of consumer protection. I have to think that there will be some tendency to make some marks during their first year,” says Oliver Ireland, partner at law firm Morrison & Foerster.
Jonathan Pompan, of counsel at the law firm Venable agrees. “The obligation to comply with the law remains the same, but the new factor—not to be underestimated—is that there is a new federal agency, with virtually limitless power, that is now turbo-charged for supervision and enforcement of not just banks, but many non-banks,” he says.
Most of the rules are transferred to the CFPB from other regulators including the Equal Credit Opportunity Act (formerly Regulation B from the Federal Reserve Board), the Land Sales Registration Program (formerly rules of the Department of Housing and Urban Development), the Privacy of Consumer Financial Information (formerly implemented by three other federal agencies), the Fair Credit Reporting Act, the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).
Although most of the regulations adopted by the CFPB remained unchanged, a close read will uncover a few differences. For example, a provision in Regulation B extends the statute of limitations for civil actions from two years to five. The CFPB also made several technical amendments to the coding for filing forms used by previous regulators.
The CFPB has also been waging a communications campaign, to let everyone know that it considers its purview to be any business, regardless of size, that sells financial products to consumers. Posts on the CFPB blog say its authority will also include supervision of debt collection, consumer reporting, auto financing, and money-services businesses, once the agency completes its task to define the larger participants' definition as required by the statute.
“The obligation to comply with the law remains the same, but the new factor—not to be underestimated—is that there is a new federal agency, with virtually limitless power, that is now turbo-charged for supervision and enforcement of not just banks, but many non-banks.”
— Jonathan Pompan,
Of Counsel,
Venable
More on Transferred Regulations
In one recent CFPB blog post, for example, the agency made clear that it will extend its bank supervision program, which began last July, to non-banks entities, ensuring that banks and non-banks are governed by the same rules. “This consistent supervisory coverage will help level the playing field for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve them,” the CFPB said in a previous statement.
Edmund Harllee, partner at law firm Williams Mullen, says the adoption of these rules is part of the CFPB's opening move to accomplish its goals. “The transition will allow the CFPB to evaluate whether financial institutions are conducting their businesses in compliance with federal consumer financial laws,” he says.
“If you look back at the past one and a half years, you see the emergence of very deliberate and strategic efforts by the CFPB to regulate all consumer financial products and services,” Pompan says. “The inherited regulations are only one piece of a multi-faceted program. By July 2012, we'll have a better understanding of what the agency is moving on to.”
Other regulations assumed by the CFPB include:
Electronic Fund Transfers (Regulation E)
Real Estate Settlement Procedures Act (Regulation X)
Home Mortgage Disclosure (Regulation C)
Consumer Leasing (Regulation M)
S.A.F.E. Mortgage Licensing Act (Regulations G&H)
Mortgage Acts and Practices-Advertising (Regulation N); Mortgage Assistance Relief Services (Regulation O)
Disclosure Requirements for Depository Institutions Lacking Federal Deposit Insurance (Regulation I)
Disclosure of Certain Credit Card Complaint Data
Request for Information Regarding Private Education Loans and Private Educational Lenders
ABOUT THE CFPB
The excerpt below from the CFPB Website describes the agency's origins and core functions.
… In June 2009, President Obama proposed to address failures of consumer protection by establishing a new financial agency to focus directly on consumers, rather than on bank safety and soundness or on monetary policy. This new agency would heighten government accountability by consolidating in one place responsibilities that had been scattered across government. The agency would also have responsibility for supervision and enforcement with respect to the laws over providers of consumer financial products and services that escaped regular Federal oversight. This agency would protect families from unfair, deceptive, and abusive financial practices. The President urged Congress to give the consumer agency the same accountability and independence that the other banking agencies have and sufficient funding so it could ensure that powerful financial companies would comply with consumer laws.
In July 2010, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act created the Consumer Financial Protection Bureau (CFPB). The CFPB consolidates most Federal consumer financial protection authority in one place. The consumer bureau is focused on one goal: watching out for American consumers in the market for consumer financial products and services.
CORE FUNCTIONS
The consumer bureau is working to give consumers the information they need to understand the terms of their agreements with financial companies. We are working to make regulations and guidance as clear and streamlined as possible so providers of consumer financial products and services can follow the rules on their own.
Congress established the CFPB to protect consumers by carrying out Federal consumer financial laws. Among other things, we:
Conduct rule-making, supervision, and enforcement for Federal consumer financial protection laws
Restrict unfair, deceptive, or abusive acts or practices
Take consumer complaints
Promote financial education
Research consumer behavior
Monitor financial markets for new risks to consumers
Enforce laws that outlaw discrimination and other unfair treatment in consumer finance
Source: The Consumer Financial Protection Bureau.
Examination Tools
The CFPB has said it will approach examinations for banks and non-banks in the same manner, using a combination of required filings, review of the materials companies use to offer products and services, review of the companies' compliance systems and procedures, and study of the products and services promised to consumers. One piece of good news: Institutions selected for examination will get advance notice.
The agency also released its Supervision and Examination Manual in October, with a recent update posted on its Website earlier this month. The examination manual will be the roadmap CFPB inspectors use to scrutinize companies, so any compliance officers who want to be prepared would do well to download a copy and give it a read.
Pompan says that right now, the examination manual is a general overview of statutes and regulations that define how the CFPB will access the compliance program of institution. “As the program becomes more developed, it's expected that [the CFPB] will formulate some industry-specific protocol,” he adds.
Implications to Market Participants
Companies should pay close attention to the CFPB's examination activities, Pompan says. “The action is not in the changes to the rules, but the supervision and examination program is the focus now,” he says. With the appointment of Cordray, the agency now has the authority to launch full investigations on bank and non-bank financial entities. The CFPB has been hiring rapidly in all areas, specifically recruiting former bank examiners, former state attorneys general, and others with high levels of experience supervising bank and non-bank organizations.
Ireland of Morrison & Foerster warns that the CFPB has set its priorities, and businesses should consider what the perceived problems are: “Businesses should really think about how their businesses work, and find out what are the issues.” He adds that since the comment periods for most of the regulations adopted by the CFPB are still open, market participants should speak up while they can.
“What needs to happen is for industry to look at those changes, comment, and suggest the alternatives,” he says.
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