A useful article in CNN Money (hat tip SA) describes what happens if the Consumer Financial Protection Bureau does not have a director in place by its official start-up date, July 21. That outcome looks certain, given that the House Oversight Committee has scheduled its ritual flogging of its defacto head, Elizabeth Warren, for July 14, and Senate Republicans have vowed to nix any candidate lest they get to strangle the agency by controlling its budget.
Even if Obama were to have a brain transplant and do something so out of character as to get in a fight with banks and the Republicans, the logical window of opportunity for breaking the Senate’s planned pro-forma sessions (a device to forestall a recess appointment) would be the four week end of summer Congressional break. That starts August 8. So it looks like a sure bet that the CFPB will go past July 21 with no chief in place.
Contrary to popular opinion (and bank lobbyist fond hopes) the CFPB is not stymied if a director has not been installed. What would happen is:
1. The CFPB does not get moved to the Fed. It stays in the Treasury under Geithner.
2. The CFPB cannot act on new regulatory powers created by Dodd Frank, but it can act in one of its planned and still large roles, that of the overseer of existing consumer financial regulation which is now scattered among many agencies. Those powers are transferred to the CFPB as of July 21.
So Warren could continue in her current role as
minister without portfolio effective leader of the agency if Geithner were to hand off that task to her. Expect a major outbreak of Banker Derangement Syndrome if that occurs.
The CNN story outlines some of the things that the CFPB can do as of July 21:
* Send bank examiners in to inspect the books of the largest banks with more than $10 billion in assets, which account for 65% of all mortgages.
* Ensure that the biggest banks are abiding by credit card laws that require more disclosure and crack down on fees. They can also craft new rules aimed at stopping banks that try to get around the credit card laws.
* Ensure that consumers denied bank loans based on a bad credit scores, get to see a copy of their credit scores for free.
* Finish crafting rules that ban banks and other lenders from making mortgages without verifying income, an effort end the practice of liar loans.
* Create new rules under existing consumer laws. For example, the bureau would have the power to crack down on the kinds of fees banks charge customers who overdraw their checking accounts, although that’s not top of the list right now.
The sticking point is that the agency cannot take up new powers created by Dodd Frank, such as regulating non-banks that engage in consumer financial services activities, such as payday lenders and mortgage brokers, or banning financial products because they are abusive or deceptive
The American Bankers Association and Republicans dispute the Treasury’s interpretation of Dodd Frank and argue that the agency should do nothing until it has a director installed. The ABA is huffing and puffing and saying that the any effort by the CFPB to enforce existing rules will be challenged in court. Really? Exactly what damages could a bank claim? That it was being hurt by being required to obey the law? That its captured former regulator had left it alone? I don’t think anyone with an operating brain cell would want to open themselves up to discovery on that one.
The threat from the Republicans is to move a bill forward that would delay the transfer of powers from existing bank regulators to the CFPB if there were no designated head. I suspect whether this bill would have a snowball’s chance in hell of passing depends on the outcome of the July 14 Warren slugfest. Given the considerable backlash against her chief torturer last month, Patrick McHenry, the Democrats in the Senate might not be keen to defect and vote against Warren if the bill were to get through the House.
But the reason for the ferocious opposition by banks to Warren and the CFPB generally is becoming more obvious. The banks don’t want to have to obey existing law. Forget even about new laws. The enforcement of very basic pro consumer laws like the Truth in Lending Act, the Home Owners Equity Protection Act, and the Real Estate Settlement Procedures Act has been so limited that the idea that the banks might be required to behave has them up in arms. It does not take all that many people who have some expertise and are in a financial position where they can engage in old fashioned behavior like public service to make a difference if they have the right charter. Creating a non-captured regulator is a precedent the banks want to avoid at all costs.