WASHINGTON - The Consumer Financial Protection Bureau marked its first anniversary on July 21 as an independent agency, a year in which it remained a potent political target but also made considerable headway implementing its agenda.
“They’re not messing around,” said Venable counsel Jonathan Pompan, a consumer financial products specialist. “A year ago, we said there was a new sheriff in town. It’s not just a sheriff—it’s an army.”
Alan Kaplinsky, who heads Ballard Spahr’s consumer financial services practice, agrees.
“Their impact has been absolutely extraordinary,” he said.
When the White House on July 17, 2011, announced that Richard Cordray had been nominated to head the agency, President Barack Obama promised Cordray would be “looking out for ordinary people in our financial system.”
In the intervening year, Cordray has faced withering scrutiny from Congress over the legality of his January recess appointment, which some argue occurred when the U.S. Senate was not in recess. Undeterred, he has moved forward on CFPB priorities, including those involving nonbank financial companies, where the agency would otherwise be barred from acting without a director.
As Cordray put it in a hearing before the House Oversight Committee earlier this year, “I understand the controversy about the appointment…I’m in a job. It’s an important job.”
To Joseph Lynyak III, a Pillsbury Winthrop Shaw Pittman financial services partner, the biggest question mark a year ago was “whether the CFPB would act more as an enforcer or a regulator.”
Lynyak points to the CFPB’s settlement last week with Capital One Bank as a “very, very troubling” signal that the agency may be inclined to “shoot first…rather than working with the regulated entity to achieve compliance.”
Capital One agreed to pay $210 million to settle charges brought by the CFPB along with the Office of the Comptroller of the Currency for deceptively marketing credit cards.
Kaplinsky of Ballard Spahr said the Capital One case is “just the tip of the iceberg… There are dozens of ongoing investigations.”
“We are going to see a level of enforcement activity that’s daunting, to say the least,” he said, en route to a meeting at the CFPB to discuss one such investigation. “They are investigating what seems like the entire consumer financial industry, and the investigations are sweeping. They’re asking for every shred of paper, every piece of electronic data ever generated.”
The CFPB has been active on other fronts as well.
Earlier this month, the consumer watchdog announced rules for supervising credit reporting agencies. It also proposed a standard “penalty fee box” to make checking account overdraft fees clearer to consumers and is working with other agencies on loan-modification and foreclosure-relief programs for military members.
Public inquiries are under way on mandatory arbitration clauses in consumer financial products and payday lending. The CFPB put its database of consumer complaints online and is considering ways to require mortgage servicers to provide clearer information to borrowers. Student loans have come under scrutiny as well.
To Venable’s Pompan, the CFPB’s “consistency in approach rivals a political campaign.” He notes that the agency has embraced “the power of the bully pulpit” and that “non-rulemaking guidance and other pronouncements seem to be far more prevalent than actual substantive rules.”
Pompan praised the agency for seeking input from industry stakeholders, though he added, “Whether they’ll actually incorporate it into the final decision remains to be seen.”
Focus on Mortgage Market
Looking ahead, the mortgage market will be a major focus for the CFPB in the coming year.
As CFPB deputy director Raj Date told a House Financial Services subcommittee last week, “The mortgage market will recover when we have restored transparency, when we have restored fairness, and when we have restored financial incentives that reward people for making smart decisions,” he said. “As we approach the bureau’s one-year anniversary, that is what we are working toward—not just in the mortgage market, but across other financial services markets as well: transparency, fairness, and incentives for responsible behavior.
On July 24, Steven Zeisel, general counsel of the Consumer Bankers Association, told a congressional panel overseeing the CFPB that the government needs to move cautiously on new rules for mortgage lending—or risk closing down credit for many buyers.
Zeisel testified before a financial subcommittee of the House Committee on Oversight and Government Reform. The panel is looking into whether the CFPB is restricting consumer access to credit through its rules.
CFPB director Cordray also testified, repeatedly reassuring the group. In prepared remarks, he said that “helping consumers in their financial lives and preserving their access to credit are critical parts of our mission…we do not pursue one at the expense of the other.”
In keeping with the low profile that the CFPB has taken so far, Cordray explained the lengthy rule-making process, which includes numerous meetings with financial institutions and other impacted parties to consider their concerns.
Even Zeisel praised the CFPB’s first year as it focused on simplifying disclosures for credit cards, student loans, and other financial products.
“The agency’s Know Before You Owe campaign, designed to help consumers make informed decisions, is something we can all support,” he said.
@|Jenna Greene, a reporter for The National Law Journal, an affiliate, can be contacted at email@example.com. Sue Reisinger, a reporter at Corporate Counsel magazine, another affiliate, contributed to this report.