The Consumer Financial Protection Bureau can be considered a success "if financial markets become more fair, more transparent, and more competitive," according to Richard Cordray, who officially became head of the CFPB on January 4 thanks to a controversial recess appointment by President Barack Obama. Cordray wasted no time in outlining his priorities and agenda for the CFPB -- he is speaking today at the Washington, D.C.-based Brookings Institution.
I understand that the banking industry has serious and legitimate questions about how the newly empowered CFPB will create and carry out policy and the impact this may have on banks' abilities to create new products and drive revenues. At the same time, I think the spread and intensity of the Occupy Wall Street movement this past fall, and the generally low esteem in which U.S. financial institutions currently are held, require the industry to acknowledge that there have been serious problems and misdeeds in consumer finance and that the CFPB could actually help banks rebuild profitable relationships with their consumers.
[For more about the CFPB, check out BS&T's Dodd Frank Cheat Sheet, which includes details about the structure, goals and mandate of the agency.]
In prepared remarks released by the CFPB Office of Public Affairs, Cordray addressed three questions: "First, why does this Bureau matter -- not just to me, as its first Director, but to people all across this country? Second, what have we already been doing for our first six months? And third, what does it mean for the consumer bureau now to have a director, and how will we use our full authorities to protect consumers?"
Addressing the first question, Cordray pointed out that, "Consumer finance is a big part of our economy -- and it plays a large role in the daily life of almost every American … But these same financial products can also make life harder … Sometimes people make the wrong choices and get in over their heads. Others get swindled by scams." Factor in that "consumer finance clearly has become more complicated and more risky in recent years," and the need for a regulatory body that "will protect them against fraud, and who will ensure they are treated fairly in the marketplace" is clear, according to Cordray.
Regarding the CFPB's activities so far, Cordray reported on several initiatives geared toward meeting the "primary objectives" of bringing "clarity to the financial markets." These include the Know Before You Owe campaign designed to provide consumers with disclosures "that make clearer the prices and risks of financial products right up front." The CFPB also released a "Financial Aid Shopping Sheet" to help students compare financial aid packages and payments. Cordray also discussed steps the CFPB has taken around bank supervision, including investigations and providing easier access to the agency for informants and whistleblowers. "The consumer bureau will make clear that there are real consequences to breaking the law," he said in his prepared remarks.
To answer the third question, about the implications of having a director in place at the CFPB, Cordray announced the launch of a program for supervising nonbanks -- something that may please banks that have been critical of other aspects of the CFPB's mandate. Cordray explained:
"We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have largely escaped any meaningful federal oversight … Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them. But we must establish clear standards of conduct so that all financial providers play by the rules."
Cordray also alluded indirectly to the fact that technology will play a big role in how the CFPB carries out its activities. "We need to consult the best data and information we can to really understand what is happening in the market and how consumers and businesses are faring," he stated.
I think it's worth supporting Cordray in his goals, which he described as follows:
"We are determined to deliver positive results for American consumers. We want people to know what we are doing. Our work will support the honest businesses in financial markets against those who deceive consumers or otherwise break the law. We are confident that if the public understands our job, they will help us play our important role in safeguarding consumers as well as the broader American economy."