In the wake of the most significant financial crisis since the Great Depression, Congress passed the Dodd-Frank Act of 2010, which mandates a variety of significant changes to the U.S. financial regulatory structure. While all of these changes were the subject of a long and vigorous legislative debate, none provoked as much controversy as the creation of the new Consumer Financial Protection Bureau.
The Bureau, which was initially formed inside the U.S. Department of the Treasury, functions as an independent agency under the Federal Reserve’s umbrella. The new regulator has been given the authority to issue new consumer financial protection regulations, enforce existing laws, and to supervise the conduct of lenders and other financial services firms. Given the Bureau’s vast responsibility for matters related to consumer financial products, its activities are certain to become a significant concern for financial institutions and main street businesses for years to come.
The Bureau is to be headed by a Director appointed by the President and confirmed by the Senate. At the start, President Obama appointed Elizabeth Warren, a Harvard Law School professor and former head of the Congressional Oversight Panel for the Troubled Asset Relief Program, as an advisor to oversee the creation of the Bureau. In July, President Obama nominated Richard Cordray, the former attorney general of Ohio and assistant to Warren, as the new agency’s first director. Cordray has yet to be confirmed by the Senate.
Transition to Independent Status
The Treasury transitioned the Bureau to the Federal Reserve on July 21, 2011. Prior to the transfer date, the Bureau conducted research relating to consumer financial products and services, began developing its nationwide consumer complaint response center, and took steps to implement the risk-based supervision of nondepository covered persons, and prepare for the opening of outreach offices.
Exercising its Significant Regulatory Power
Mortgages and credit cards are the first financial products in the Bureau’s sights, but the new agency has the potential to impact almost any entity that offers financial products to consumers. What remains to be seen is how the Bureau will wield its extensive power when it begins to execute its rulemaking agenda. Will the agency carry out its responsibilities without stifling the market for consumer financial products? How will the Bureau co-exist with the other financial and consumer protection regulators and with state enforcement authorities?
Congress, the financial community, and consumers all will be watching. The Bureau will remain in a transitional phase for some time, as it acquires staff and begins to write the rules that will define the consumer financial products arena for generations to come. As new developments take place in the upcoming months, Cozen O’Connor Public Strategies will continue to closely follow the Bureau and report on these developments.