Richard Cordray, the former Ohio attorney general who now heads enforcement at the Consumer Financial Protection Bureau, shared a glimpse of his priorities in a speech to an gathering of attorneys general and in a blog yesterday. The one point he made that surprised me was that the CFPB strongly wants to police non-banks as well as banks, and that it's making this a key part of its demand for funding from Congress.
In the speech, Cordray outlined five objectives for his organization in implementing the Dodd-Frank Act.
1. Provide consumers with timely and clear information so they can make responsible decisions about financial transactions. "Before the financial crisis hit this country, loose practices abounded in the mortgage origination market," he said. "Sellers were willing to arrange just about any kind of loan, no matter how poorly the borrower's capacity was documented, as indicated by terms like SIVA (stated income/verified asset) and NINJA (no income, no job, no assets). In addition to this sort of sloppy or fictional underwriting, they offered teaser rates, masked the actual terms, and accepted yield spread premiums that rewarded them for driving people into more expensive loans than they actually qualified for. Taken together, these practices misled consumers into thinking that they could afford these loans, and that these loans were the best deals they could get."
Consumers ought to be able to understand financial products before they buy them, he said, and there should be no hidden unwelcome surprises. "The Consumer Bureau is dedicated to eliminating the kinds of tricks and traps that were used to ensnare consumers in financial products they could not afford and that too often drove them into foreclosure or bankruptcy," he said.
2. Protect consumers from unfair, deceptive, or abusive acts and practices, and from discrimination. "We look forward to bringing our new authority to bear against bad actors in the marketplace," he said. "Rooting out these bad actors will be good not only for consumers, but also for community banks and other financial companies that are committed to honest dealing and quality customer service. These enforcement efforts will complement our other initiatives to promote fair, transparent, and competitive markets: it will help to ensure that those with a core business model built around treating people fairly -- offering beneficial products in a transparent manner -- will be the winners in the marketplace."
3. Identify and address outdated, unnecessary, or unduly burdensome regulations. "Two distinct federal agencies are responsible for administering the Truth in Lending Act and the Real Estate Settlement Procedures Act," Cordray said. "These two agencies have had discussions, going back for fifteen years, about harmonization and simplification of the mortgage disclosure forms mandated under each law -- which you no doubt have noticed kills whole forests to provide the paper for ordinary real estate closings." The CFPB aims to actually simplify such disclosures within a year.
4. Enforce federal consumer financial law consistently, without regard to the status of a financial services provider as a depository institution, in order to promote fair competition. This means enforcing laws against unlawful practices among non-banks as well as banks.
"The non-bank sector consists of tens of thousands of companies, and it has never before been supervised by a Federal agency," Cordray noted. "That is why it is so critical that the Consumer Bureau retains its independent funding model, a model that will allow it to respond rapidly and appropriately to legal violations and changes in the marketplace over time."
5. Ensure that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation. The Research, Markets and Regulations Division of the Bureau will track market practices, developments, successes, and failures, and make market data accessible and transparent to businesses and consumers, Cordray said.
"Already, we are working to understand the consequences of the recently enacted CARD Act by collecting information and data from credit card companies and other sources," he said. "The early returns indicate that in response to the CARD Act, issuers have eliminated some of the practices that can confuse customers and cost them money they did not reasonably expect to pay. Some issuers have gone further than the law requires to curb re-pricing and over-limit fees. These are examples of how good data collection and analysis can help us understand how the market is responding to new laws and what new products and services may be emerging. At every opportunity, we will work to make our policy decisions based on hard data and rigorous analysis."
In the blog Cordray posted yesterday, he again emphasized the need for state attorneys general and the CFPB to enforce general consumer financial law consistently among non-banks and banks.
"Tens of thousands of so-called 'non-bank' companies offer consumer financial products and services -- they just don't take deposits like a bank or thrift," he wrote. "These companies need to be subject to similar oversight and enforcement as banks if they are competing for customers with similar products and services in the same marketplace."