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The CFPB: Consumer Savior or a Toy Without Batteries?

The CFPB: Consumer Savior or a Toy Without Batteries?

The Consumer Financial Protection Bureau (CFPB) might have been a household name by now. It might have been, depending on who you talk to, the defender of every misinformed consumer in America, or the surest path to a new round of bank failures.

But to most people it’s a non-entity because nearly a year after it was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act—the omnibus federal law that seeks “to promote the financial stability of the United States by improving accountability and transparency in the financial system”—it has no permanent head or even a nominee for the post and has yet to begin operations.  And without a permanent head it will have the transferred regulatory authority of seven federal agencies, including the Federal Trade Commission and the Securities and Exchange Commission, but  according to some accounts, no way to use them.

And in May, 44 Republican senators sent a letter to the White House promising to kill it if it’s not overhauled to their satisfaction.

In the uncertain political and regulatory morass that has resulted, in-house counsel at mortgage lending institutions, credit card companies and other non-bank lenders are left to ponder what changes might be wrought by the CFPB, if and when it gets its act together.

Lewis S. Wiener, a partner at Sutherland Asbill & Brennan LLP in Washington, D.C., has some ideas on that.  For openers, Wiener sees concerns for in-house counsel at non-bank lenders around what a fully empowered CFPB might do in response to the recent spate of U.S. Supreme Court decisions favoring big business; he calls mortgage lenders and credit card companies “low-hanging fruit” ripe for the CFPB to address.

“If I’m the agency, I’m going to take on issues that affect the most number of people as quickly as I can and look to enforce the rules and regulations, the laws, as they affect the greatest number of people,” Wiener says. “And what is that? Credit cards, real estate [in terms of] the disclosures, the types of documentation, the kind of stuff that people point to and say, ‘What was really at the core of the economic/financial meltdown?’  I would think that would be where their priority is.”

Referring to a pair of Supreme Court cases dealing with mandatory arbitration provisions and class-action waivers that were decided in favor of big business—AT&T Mobility v. Concepción (No. 09-893, U.S. Sup., April 27, 2011) and Dukes v. Walmart (No. 10-277, U.S. Sup., June 20, 2011)—Wiener advises counsel to look over their companies’ contracts and insert class-action waivers and arbitration provisions as appropriate.

Nevertheless, he cautions them not to think their work is done.  He points to comments made by Sen. Patrick Leahy (D-Vt.), chairperson of the Senate Judiciary Committee, suggesting that Congress might want to react to those decisions to swing the pendulum back toward the consumer.

“One of the things the Bureau is charged with doing is undertaking a study that will look at specifically the enforceability . . . of mandatory arbitration provisions, and then make recommendations based on that,” Wiener says. “So for as much as everyone is happy in the business community about Concepción, be wary because the Bureau in the next 12, 18, 24 months, whenever it gets around to undertaking that study and making the recommendations, could come back with recommendations that result in legislation that will take away what Concepción has just given. So you need to be careful about celebrating too hard the victory of Concepción because it may be short-lived.”

Recent reports in the media have suggested that, in the absence of a confirmed director, the CFPB will have to forego rulemaking to regulate financial companies within its jurisdiction in favor of enforcement actions based on the powers to be transferred by the seven federal agencies on July 21.

But it isn’t that simple, Wiener suggests. A close reading of Dodd-Frank—as well as a report by the Inspector General of the Treasury Department, wherein the CFPB resides— reveals that, for all practical purposes, the agency won’t even have the enforcement club in its bag.

Dodd-Frank makes the Secretary of the Treasury the de facto head of the CFPB until a director is confirmed but does not transfer to him all the powers the office carries, Wiener says.  He quotes language in the Inspector General’s report saying in part that “if there is no Senate-confirmed Director by the designated transfer date, in general, the Secretary is not permitted to exercise the Bureau’s authority to prohibit unfair, deceptive or abusive acts or practices under subtitle C [of Dodd-Frank] in connection with consumer financial products and services.”

“I think people have overlooked this,” Wiener says. “This has always been my opinion, that there were transferred functions and non-transferred functions, and until a director is appointed, you can’t do [certain things]. And none of it’s happened. The fact is they haven’t taken any of this enforcement action, and . . . they can’t do it until a director is appointed. And that’s why it’s so critically important for the operations, especially the enforcement arm of the bureau, to have a director appointed by the transfer date. If they don’t, this continues to be the proverbial toy with no batteries.”