Consumer finance bureau under Cordray makes its presence felt

 Director of the Consumer Financial Protection Bureau Richard Cordray Director of the Consumer Financial Protection Bureau Richard Cordray J. Scott Applewhite/AP

Richard Cordray, the recess-appointed director of the Consumer Financial Protection Bureau, has hit the ground running in recent weeks, proposing several major rules, testifying before Congress on his budget and appearing in public to gauge consumer sentiment.

And though Republican lawmakers have continued their quest to trim Cordray’s power and funding, many in the financial services industry appear to be adapting to the presence of this new independent regulatory agency.

On Wednesday, the bureau inserted itself in the contentious area of bank overdraft policy. As Cordray appeared at a public event in New York City to solicit tales of checking account woes from average consumers, the bureau announced it has begun an inquiry into checking account overdraft programs to determine their impact on consumers. It is seeking feedback on a prototype “penalty fee box,” which would highlight amounts overdrawn and total overdraft fees charged on a consumer’s checking account statement.

“With today’s technologies, consumers have more opportunities to access their checking accounts and cause overdrafts,” Cordray said in a statement. “But overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it. We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”

Among the bank practices the bureau considers questionable are the commingling of checks, debit card transactions, bill payments and ATM withdrawals so that they can be reordered in a way that allows banks to charge larger overdraft penalties. The inquiry also will deal with unclear overdraft policies, marketing materials considered misleading, and the allegedly disparate income of overdraft practices on low-income and young consumers.

On Feb. 16, CFPB invoked its authority under the Dodd-Frank financial reform law, signed in 2010, to break new ground in proposing a rule to supervise the debt collection and consumer credit report industries.

“Consumer financial products and services have become more complex over the years, and they have expanded well beyond traditional banks,” Cordray said in a press release. “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

Under the proposed rule, an estimated 30 of the largest consumer reporting agencies -- those with more than $7 million in annual receipts from consumer reporting activities -- would be subject to supervision. Credit reports affect the financial futures of most consumers when, for example, they apply for mortgages, auto or home improvement loans.

On Feb. 15, Cordray sought to quiet critics in his testimony before the House Financial Services Oversight and Investigations Subcommittee on the bureau’s budget request. “Now that we completed our statutory transition period and have become a full-fledged independent agency with the legal responsibility to protect American consumers in the financial marketplace, our expenditures have naturally increased,” he said. “As you can see in our budget justification, however, our budget estimates remain considerably below our budget cap at $356 million for 2012 and $448 million for 2013. At this time, we have no plans to ask Congress for any further appropriations, as we are authorized to do by law.”

Two bills affecting CFPB are currently under consideration in House subcommittees. H.R. 1355 would subject CFPB funding to the appropriations process, in contrast with the current setup under which it receives nontaxpayer funds from the Federal Reserve. H.R. 2081, introduced by Rep. James Renacci, R-Ohio, would remove the director of the CFPB from the board of the Federal Deposit Insurance Corporation and replace this person with the chairman of the Federal Reserve System.

Rep. Randy Neugebauer, R-Texas, chairman of the Oversight and Investigations Subcommittee, said at a Feb. 8 hearing “the decision to fund the CFPB outside of the appropriations process deprived Congress of a major tool for overseeing its operations. Despite the obstacles created by Dodd-Frank, the committee is still hoping to get some idea of how CFPB programs are being run and at what cost.”

The bureau’s new inquiry into overdraft practices was welcomed by Virginia O’Neill, senior counsel of the American Bankers Association. Current guidance from a variety of agencies such as FDIC “did not get it right,” she said, adding her group would welcome a re-examination of the data.

“Until you study the consumer response and the banks’ response, more regulation is not necessary,” she said. “In the free market, banks have to have the opportunity to see a regulation and decide how to compete under it. That’s the way CFPB is going.”

The proposed rule to supervise debt collection firms and credit reporting services is being studied by that industry, which has 60 days to comment, according to Mark Schiffman, director of public affairs for the Minneapolis-based ACA International, a trade group of collections companies. “We knew large industry players would be regulated, but we were unsure about the threshold on inclusion of other companies.” He said his association “will work with the CFPB just as we have worked with Federal Trade Commission as our regulator, to help the bureau understand our industry.”

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