Thursday, January 05, 2012

Director Cordray Outlines Vision for CFPB and Begins Regulation of Non-Bank Financial Entities

In his first remarks as Director of the Consumer Financial Protection Bureau, Richard Cordray outlined a vision for the Bureau of transparency, effective enforcement and exercising the full powers of the Bureau over banks and non-bank financial entities. In remarks at The Brookings Institution, the Director announced that the Bureau will immediately launch a program for supervising non-bank financial entities, such as payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have until now escaped meaningful federal oversight. This launch fulfills the twin promises of the Dodd-Frank Act that the Bureau will have a singular focus on protecting consumers in the financial marketplace, and ensuring that large banks and non-bank financial firms are held to the same standards.

The non-bank markets are large and significant, the Director emphasized, and provide valuable services to customers who lack access to other forms of credit. For example, he noted that nearly 20 million US households use payday lenders and pay roughly $7.4 billion in fees every year. Also, many subprime loans during the housing bubble were made by nonbank mortgage brokers. The Bureau is pledged to establish clear standards of conduct so that all financial providers play by the rules.

He also noted that a primary objective of the Bureau is to bring clarity to the financial markets. Since people have a hard time understanding the terms of a financial deal when they have to pore over reams of fine print, he said, so the Bureau launched its Know Before You Owe campaign to provide consumers with easy-to-understand disclosures clarifying the prices and risks of financial products right up front. The Director posited that two basic premises of a well-functioning market are that buyers and sellers understand the terms of the deal, and that buyers are able to compare possible alternatives. Honest businesses want to compete in such a market, he reasoned, and they are satisfied to win market share based on fair competition and excellent customer service, not through deception or fraud.

Another key objective of the CFPB is ensuring that financial institutions are playing by the rules. The Bureau inherited the responsibility of supervising the largest banks in the country to make sure they are following the law. In practical terms, that means that the Bureau has examiners on the ground with broad authority to review loan documents, ask tough questions, and make a financial institution fix problems that come to light. The Director believes that financial institutions can speak to their customers more simply and more clearly, adding that straightforward transparency promotes responsible decision-making by consumers.

The Bureau will also clarify that there are real consequences to breaking the law. Informants and whistleblowers have been given direct access to the CFPB. The Bureau took over a number of investigations from other agencies in July, he noted, and are pursuing some investigations jointly with them. The CFPB has also started its own investigations. While some investigations may be resolved through cooperative efforts to correct problems, he said, others may require enforcement actions to stop illegal behavior.