The highly touted consumer-protection agency, created in the wake of the 2008 financial crisis, launches Thursday lacking key powers that Congress had intended for it.
The Consumer Financial Protection Bureau (CFPB) will begin this week to enforce dozens of rules that Congress lumped together as part of last year’s overhaul of financial regulations. It will help ensure that credit-card holders have a clear understanding of the plastic in their wallets, borrowers are protected from unfair lending, and military families have a dedicated financial watchdog.
Yet without a confirmed director, the agency can’t write or enforce new rules for nonbank financial companies, which made about half of the riskiest subprime loans before the crisis. The agency was created as the first-ever federal regulator for many of these companies. Lawmakers wanted to prevent them from sidestepping rules that already applied to banks.
The slow start isn’t limited to the consumer agency: The Federal Reserve, the Securities and Exchange Commission and other regulators have been working to implement 243 rules called for in the overhaul bill. Nearly half were supposed to be in final form by now. But on the one-year anniversary, fewer than 50 have been completed.
The lack of a confirmed director means even more uncertainty for the CFPB. President Obama’s choice for the job is former Ohio Attorney General Richard Cordray.
Republicans say they will block him or any other nominee until the power of the agency and its director are scaled back. They have introduced legislation that would replace the agency’s director with a five-person commission and give Congress more control over its budget.
Supporters of the agency say it will be more effective than its predecessors because it has a single focus: making sure consumers are treated fairly by banks, lenders and other financial companies. They say Americans and the companies will be stronger financially as a result.
Before the overhaul, the responsibility for protecting consumers was shared among seven agencies that also were responsible for making sure banks stayed healthy. That sometimes presented conflicts, such as when banks increased their use of steep overdraft fees. Because the regulators were focused on banks’ financial performance, consumers often lost out.
Banks are nervous that the agency’s rules will make it difficult to profit from some products. That would discourage them from developing new offerings that consumers might want, they say.
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