July 19, 2011 –
Banks Likely to be the Sole Focus of New Consumer Protection Agency

The Dodd-Frank Act enacted last July directed the Department of the Treasury to establish the Consumer Financial Protection Bureau (“CFPB”), a new federal agency whose primary purpose is to educate the public about certain consumer financial products and services as well as to regulate the providers of such products and services. The entities over which the CFPB has regulatory authority includes both banks and non-banks, however, unless a director is confirmed by the US Senate to head the agency by July 21, 2011, the CFPB’s supervisory authority will be limited only to banks.

Although the White House has not officially announced a nominee to head the consumer watchdog agency, Harvard professor Elizabeth Warren is expected to get the nod, and has been serving as a “special advisor” on the creation of the CFPB. In a letter to the President, 44 Senators openly stated that they would block the confirmation of any single person as director because they believe a board is more appropriate to supervise the CFPB given the amount of power granted to the CFPB. Thus, the White House would be 4 votes shy of preventing a confirmation-blocking filibuster from moving forward.

Not only would the effects of not having a confirmed director by the July 21 deadline run contrary to Congress’s intent in creating the agency (i.e. to supervise all financial product and service providers), but banks will not likely be keen on being the sole focus of the CFPB and may pressure Congress to resolve the issue of the director vacancy despite the significant opposition. Furthermore, there is evidence that the CFPB will in fact put banks under the regulatory microscope immediately. The agency recently announced that it was preparing to send examiners to the country’s 100 largest banks shortly after officially opening for business on July 21. The examiners will be looking at banks’ books and records and meeting with bank executives to ensure they are complying with federal consumer finance laws. Bankers have heavily criticized the Department of the Treasury’s interpretation of Dodd-Frank and believe that the CFPB should not have the ability to exercise its supervisory powers until a director is appointed and confirmed.

With the July 21 deadline quickly approaching, it should be interesting to see how the events unfold.

For more information, view Gustav Schmidt’s contact information here.