Compliance Blog

Written by Steve Van Beek

So, that happened yesterday.  And, the question that popped into thousands of compliance officers simultaneously:  how does this impact credit unions?   

Prior to the Appointment of the CFPB Director

A month prior to the designated transfer date - July 21, 2011 - we blogged on the CFPB's Regulatory Authority Without a Director.  That discussion highlighted which powers the CFPB could utilize beginning on July 21, 2011 and which powers were specifically designated for use by a "Director."  The short version is that on July 21, 2011, the CFPB obtained powers transferred from other regulators but did not have the ability to utilize the new powers granted to the CFPB's Director by the Dodd-Frank Act.  

The CFPB Now Has Full Authority

The distinction discussed above was removed when President Obama appointed Richard Cordray as the Director of the CFPB.  With a Director, the CFPB now has the authority to exercise all the powers designated to the CFPB by  Dodd-Frank.  

What New Authority Did the CFPB Obtain?

The best place to look for a summary of which new powers the CFPB gained is a January 2011 Joint Response by the Inspector Generals of the Federal Reserve and the Department of Treasury.  Specifically, Question & Answer 5 answered the question of which powers the CFPB did not obtain until it had a Director.

With a Director, the CFPB gains its full powers - including those from Section 1024, Section 1022 and Subtitle C of Title X of Dodd-Frank.  Those new powers include: 

• The ability to write regulations identifying unfair, deceptive or abusive acts or practices by any party offering a consumer financial product or service (Section 1031 of Subtitle C);
• The ability to write regulations to ensure full, accurate and effective disclosures – both initially and over the term of the product or service – for any consumer financial product or service (Section 1032(a) of Subtitle C);
• The ability to adopt model disclosures for any financial product or service (Section 1032(b) of Subtitle C);
• The power to examine and supervise nondepository institutions who originate or service mortgage loans, offer private education loans or offer payday loans (Section 1024); and 
• The power to determine which entities are larger participants in markets for other consumer financial products and, thus, subject to the supervision and examination (Section 1024).    

So, Where Does the CFPB Start?

The push from the CFPB supporters has consistently focused on the need to obtain a Director to supervise institutions that were not previously regulated at the federal level.  With a Director, the CFPB now has the ability to move toward its goal of instituting a regulatory structure for these nondepository institutions.  

Indeed, Cordray's initial blog post indicates this will be a top priority:

"One difficulty we faced until now was that, without a director, we were unable to address all the problems we were created to tackle. In particular, we lacked the ability to supervise financial institutions other than big banks – like nonbank mortgage lenders and servicers, and payday lenders. Many of these institutions had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers.

I am pleased to say that, starting today, we can now exercise the full authorities granted to us under the law and begin to supervise these nonbanks. Standing up this program is a top priority for the CFPB. Over the coming weeks we’ll be announcing more information about this program and how it will help to improve the consumer financial markets."

Will this Impact the CFPB's Efforts in Other Areas (such as the TILA-RESPA combined disclosures)?

I don't think this directly impacts the CFPB's efforts in other areas.  However, the CFPB does have limited resources and some of those resources will now be directed toward exercising these new powers and setting up the program to supervise and examine nondepository institutions.  

We really won't know more until additional information comes out from the CFPB.  

As always, we'll do our best to keep everyone up-to-date on the latest information.