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Likening itself to a “cop on the beat,” the Consumer Financial Protection Bureau today became Washington, D.C.’s newest agency—one launched amidst an ongoing tug-of-war between proponents and detractors. The political struggles faced by the CFPB and its supporters in the Obama Administration have meant that the agency launched with a staff of 400 to begin, yet sans a director. Republicans have promised to block the confirmation of an agency chief until the CFPB is subject to increased oversight. (President Obama has nominated former Ohio attorney general Richard Cordray to head the agency.) Given the intensity and volume of anti-agency lobbying, one is led to ask: what, exactly, does the financial services industry have to fear from the CFPB? Mortgage lenders and credit-card issuers are the two most important consumer-product industries the agency’s regulatory sway will impact. The CFPB’s chief architect, Harvard Law professor Elizabeth Warren, has emphasized the need to make contract terms more understandable and financial forms simpler. Without a director, the CFPB’s capacities are limited. For now, it can take enforcement action based on existing consumer protection laws. If and when a director is appointed, the rule-making process would follow. “There’s change, and that’s always a challenge,” says consumer finance expert Christopher L. Peterson, a professor and associate dean at the University of Utah’s S.J. Quinney College of Law. Until now, Peterson explains, financial institutions have had comparative advantages based on their type of charter. But as the CFPB assumes regulatory duties once held by seven different agencies, all companies that provide consumer credit will find themselves in a single agency’s sights. This could lead to “a more level playing field,” Peterson says. “The question is which firms will adapt the most efficiently and the quickest”—which is how the American economy has always functioned, he adds. There indeed will be winners and losers under the new framework, says George Mason University law professor Todd Zywicki, who is staunchly opposed to the CFPB and the extent of its powers. He decries the agency’s lack of oversight, the financial burdens of regulation, and the potential loss of financial innovations that provide consumers with more choices. Instead of a level playing field, Zywicki predicts that big banks will be the victors in the mortgage-lending arena. At the expense of smaller banks and mortgage brokers, larger banks are the ones who will be able to shoulder the costs of hiring lawyers and lobbyists, and responding to regulation and litigation. Zywicki also thinks consumers will lose out on ready access to affordable credit. Risk-based pricing makes credit affordable to provide, he says; if financial service corporations can’t afford to provide credit, they won’t offer it. That will force higher-risk consumers to turn to “payday lenders, pawn shops, and loan sharks”—venues where they will be more vulnerable to fraud, he says. “What consumers will end up finding out is credit will cost them more money,” Zywicki says. New York University law professor Ryan Bubb takes a different stance. Bubb, who studies household financial decision-making and served as a senior researcher on the Financial Crisis Inquiry Commission, co-wrote a 2009 New York Times op-ed in support of the CFPB. He does expect the CFPB to be “much more aggressive” than its predecessor agencies—regulators such as the Federal Reserve and the Office of the Comptroller of the Currency, which have traditionally been concerned with ensuring bank safety and stability. “Consumer financial protection was, I think, on the back burner,” he says. By contrast, the CFPB is “just tasked with protecting consumers from abusive practices,” Bubb says. “It will be a more adversarial relationship” with businesses. “The real question is, how does the rule-making play out?” Bubb says. Still, he expects that during the comment period for any proposed rules, comments logged by industry “will be very influential.” Ultimately, Bubb believes that any actions taken by the CFPB will influence the market by allowing consumers to make decisions based on up-front disclosures about pricing. “This will make it easier for firms to take the high road and successfully compete,” he says. Zywicki doesn’t buy it. He believes that overzealous regulation will act as a drag on the economy. “You can’t layer on this much regulation,” he says, “without dramatically increasing the cost of loans.” But Peterson thinks this is the right time for the agency. Noting the “toxic legacy” of products implicated in the recent financial crisis and ensuing recession, he believes that “the benefits of the CFPB are going to be in. . . stabilizing the American middle class. Financial services have been destructive for that goal in the last 10 or 15 years.”

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