Cordray in first speech: Consumer agency to target shadow banks

WASHINGTON ― In his first speech as head of the Consumer Financial Protection Bureau, Richard Cordray said his agency will immediately begin overseeing lenders outside the banking industry, and will take a tough stance against any financial players that break the law.

In a controversial move President Barack Obama on Wednesday installed Cordray as the CFPB’s first director through a recess appointment after Senate Republicans blocked a vote on his nomination last month.

The bureau, created by the 2010 Dodd-Frank financial oversight law, is charged with policing consumer markets for products such as credit cards and home loans.

“The consumer bureau will make clear that there are real consequences to breaking the law,” Cordray said in remarks prepared for delivery on Thursday at the Brookings Institution, a Washington think-tank.

Cordray is a former Ohio attorney general who was not afraid to file legal challenges against banks, including Bank of America Corp.

Democrats have heralded the bureau, which opened its doors in July, as a way to protect consumers from abusive lending practices like the type of home loans that were made in the years leading into the 2007-2009 financial crisis.

Republicans, who demanded structural changes to the agency before they would help confirm a permanent director, have charged the agency is a virtually unchecked government body that will hurt lending and put small banks out of business.

Cordray said the agency has already taken over some enforcement investigations from other agencies and has started some of its own.

Many words, little action in consumer agency debate

WASHINGTON ―The answer to the Final Jeopardy! question of who will be the first director of the Consumer Financial Protection Bureau will not become known on Thursday.

In fact, it may be a while before there is an answer.

Senate Republicans say they have the votes on Thursday to successfully scuttle Democrats’ efforts to get former Ohio Attorney General, and Jeopardy champion, Richard Cordray confirmed to lead the new bureau.

Republicans insist their problem is not with Cordray, whom President Barack Obama nominated for the job in July, but with how the bureau is designed.

Before they will let a director be confirmed, Republicans want changes made to the agency. Democrats do not.

That is a prescription for gridlock.

After Thursday’s vote is out of the way, the question will turn to whether a compromise is possible once the news conferences and cable interviews die down.”Our focus is very much on the vote Thursday,” White House spokesman Josh Earnest said on Wednesday. “This is one of the president’s top priorities.”

So far there are no signs the impasse will be broken soon as both parties are fitting the debate over the bureau into their broader political arguments in advance of the 2012 election.

Democrats contend Republicans are casting aside ordinary people to protect big banks and Wall Street from a new cop on the credit card and mortgage beat.

Republicans dismiss the charge and say they are trying to protect the country from more regulatory overreach that will bury Main Street under its weight.

The bureau is one of the signature aspects of the 2010 Dodd-Frank financial oversight law enacted in response to the 2007-2009 financial crisis.

It is charged with overseeing markets for financial products like credit cards and home loans in response to concerns that some shiftless lenders were preying on consumers in the lead up to the financial crisis.

Republicans contend the bureau has too much power and needs to be more carefully watched by Congress.

To this end they want it to be run by a board, rather than a director, have its budget approved by Congress and give other regulators more authority to veto its regulations.

Democrats had supported the idea of having the agency run by a board when it was first being conceived but have rejected Republicans call for changes now, arguing they are veiled attempts to weaken the regulator before can establish itself.

This week Democrats have highlighted the fact that the bureau cannot oversee payday lenders and other “shadow banking” firms until a director is confirmed.

Republicans remain unmoved.

Despite the breathless rhetoric on both sides the consumer agency has begun doing its work.

The agency opened its doors in July and has been working on issues like setting up a consumer complaint website and drafting sample credit card and mortgage forms it hopes will make it easier for borrowers to understand loans.

It also has staff onsite at large banks across the country keeping an eye on the industry.

In fact, Cordray is not unemployed. He leads the bureau’s enforcement division, and may for some time.

Mortgage rule to be released early next year: CFPB

WASHINGTON ― The new Consumer Financial Protection Bureau will release a final rule early next year requiring lenders to make sure prospective borrowers have the ability to repay their mortgages, the acting head of the agency said on Tuesday.

The rule, required by the 2010 Dodd-Frank financial oversight law, would establish minimum underwriting standards for most mortgages and is intended to combat home lending abuses that contributed to the 2007-2009 financial crisis.

The rule was originally being written by the Federal Reserve, which issued an initial proposal earlier this year. The consumer bureau, however, took over the process when it opened its doors for business on July 21.

“We plan to issue a final rule early next year in order to provide clarity to the market as quickly as we can, without sacrificing the quality of our analysis,” Raj Date, the Treasury Department official running the bureau, said in remarks prepared for delivery at a conference sponsored by the American Banker.

A key issue is what type of legal protections lenders will receive if they offer straightforward loans — such as those without interest-only payments and excessive fees — defined by the rule.

Banks are pushing for full legal protection, a “safe harbor,” while consumer advocates want borrowers to have at least some legal recourse if they feel a lender did not meet the standards laid out in the rule.

U.S. banks pushing for legal shield on mortgages

WASHINGTON ― U.S. banks still wrestling with legal troubles springing from the subprime mortgage crisis are lobbying the new consumer agency for strong legal protection for future home loans.

The Consumer Financial Protection Bureau is finalizing a proposal to entice banks to offer straightforward loans ― without interest-only payments and excessive fees ― by providing a legal shield. The question is whether to give banks full protection, known as a “safe harbor,” or a more limited legal shelter.

“It is critically important that the final rule provide a safe harbor,” Bank of America Corp. wrote in a July 22 letter. “If the final requirements instead increase the liability exposure of creditors … the result will be increased costs and further reduction in credit availability to the very consumers that the reforms were designed to protect.”

The Federal Reserve issued a proposed rule on the matter earlier this year, but then punted it to the consumer agency, which now has jurisdiction. The agency, which was created by the Dodd-Frank oversight law, opened its doors on July 21.

This rule will be one of the first big tests of how tough the consumer agency will be on mortgage markets.

The proposal has already launched a flurry of letters from large banks such as Wells Fargo & Co, JPMorgan Chase & Co. and Bank of America Corp.

Those banks and others are hobbled by stalled foreclosures nationwide due to legal questions and multibillion-dollar lawsuits from investors such as American International Group Inc. that claim the quality of securities backing the mortgages was misrepresented.

The banks argue the safe harbor for future high-quality loans would promote lending and assure investors who buy mortgage-backed securities that legal battles are not on the horizon.

On the other side of the issue, consumer advocates charge banks want to take away one of the few legal tools available to borrowers who believe a lender pulled a fast one on them.

“The bureau’s position on this rule will be an indicator of its ability to work independently of the bank lobby,” said Alys Cohen, a staff attorney for consumer advocacy group the National Consumer Law Center.

The consumer agency is expected to issue a final regulation by early next year.

An agency spokeswoman declined to comment.