Consumer bureau: Now, it can do something

@CNNMoney January 5, 2012: 5:53 AM ET
New powers come with new director to consumer bureau. But expect challenges as well.

New powers come with new director to consumer bureau. But expect challenges as well.

WASHINGTON (CNNMoney) -- With President Obama's recess appointment of a new chief to run the consumer bureau, the agency can flex new powers regulating financial products from non-banks -- including student loan providers, debt collectors, payday lenders, and mortgage originators and servicers.

Obama on Wednesday made a recess appointment of former Ohio attorney general Richard Cordray to be the first director of the Consumer Financial Protection Bureau.

That move has ignited controversy. Republicans -- who had tried to block a recess appointment for months -- are calling it an unprecedented overstepping of executive powers.

And big business groups from the U.S. Chamber of Commerce to the American Bankers Association have said they expect legal challenges -- although no one has stepped forward and said they planned to mount one yet.

"I can't tell you when, but at some point, it's ultimately going to get decided by the courts, and that doesn't help this regulator nor financial regulation," said David Hirschmann, president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, which is considering a legal challenge.

In the meantime, under Cordray's leadership, the bureau will start tackling industries that have been unregulated for years.

The new pup watching your money

"I am pleased to say that we will now be able to exercise the full authorities granted to us under the law and begin to supervise these nonbanks," Cordray said in a statement on Wednesday.

Perhaps the most pressing new power will be regulation of mortgage originators and servicers, which played a big role in the financial crisis for providing subprime mortgages to families who couldn't afford them in the years leading up to the financial crisis.

Those "toxic" mortgages ended up getting chopped into pieces and bought by big banks. The banks eventually needed government bailouts to prevent a repeat of the Great Depression, according to Federal Reserve chief Ben Bernanke. Bank of America (BAC, Fortune 500) is still in trouble in large part due to the remains of bad mortgages on its balance sheets.

Another thing the consumer bureau might be able to do is declare financial products deceptive or abusive and ban them, according to a Treasury Inspector General report.

With a director, the consumer bureau might be able to put teeth behind its work to issue the simpler mortgage disclosure form, which the bureau has been working on, that's due out later this year.

Rich Williams, a higher education advocate for U.S. Public Interest Research Groups (PIRG) said he's looking forward to the consumer bureau's work with student loans, as well as credit cards and debit cards issued on campus. With a director, the bureau can now set rules of the road for all providers of student loans, not just those issued by banks.

"Every year, students graduate owing tens of thousands of dollars before they've even earned their first paycheck," said Williams. "The Consumer Financial Protection Bureau can set rules of the game to rein in the worst abuses in the campus marketplace, and ultimately to drive down the cost of college."

But several business groups for companies that are about to get a new regulator for the first time said they're concerned about the president's move.

The Chamber's Hirschmann and other groups agree with the Republicans' push to replace the director with a board, make the bureau ask Congress for money each year, and bar the bureau from making rules that could threaten the health of financial institutions.

"AFSA remains committed to working with Congress in restructuring the bureau to be more accountable to the American people," said Karen Klugh spokeswoman for the American Financial Services Association, which represents non-bank financial firms, including some that finance auto loans and independent installment loans. To top of page

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