Today's Trends in Credit Regulation

The CFPB Watch
By Thomas B. Hudson and Nicole F. Munro

Unless you have been living under a rock, you are keenly aware of the impact the Dodd-Frank and the Consumer Financial Protection Bureau (CFPB) are having on the industry. Bank op-subs are scrambling to comply with state licensing and substantive laws that have long been considered preempted. Buy-here, pay-here motor vehicle dealers wonder when the next ball will drop, and whether it will be from the FTC or the CFPB. New model language for credit score disclosures for adverse action and risk-based pricing notices have been published for comment and compliance is required by July 21, 2011.

Although it does not formally assume any regulatory authority until July 21, 2011, the CFPB has hired a number of key players to lead its many legal, regulatory, and enforcement divisions. Key players include Holly Petraeus, who will oversee transactions involving servicemembers, Richard Cordray, who will lead CFPB enforcement, Leonard Kennedy, who will oversee the legal functions of the agency, and Steve Antonakes and Peggy Twohig, who will supervise bank and non-depository institutions respectively. Federal Reserve Board Deputy Director of the Division of Consumer and Community Affairs, Leonard Chanin, who has been writing FRB regulations for years, and who has two decades of consumer financial services experience, will now implement and lead the rule writing team for the CFPB.

The CFPB has also launched its website, The website explains the CFPB’s mission and invites consumers to share their stories and suggestions for the new agency. The website includes a video that explains the causes of the financial crisis and how the CFPB will be a “cop on the beat” to protect consumers going forward. The website includes a link to the CFPB’s blog, as well as its accounts on Facebook, Twitter, and YouTube. Notably, the website also includes Professor Elizabeth Warren’s daily calendar. You should mark this website as a “favorite” and visit it often. If you’re technologically inclined, we’d recommend following this agency on Facebook and Twitter, too.

From its website the CFPB claims it “will make sure consumers have the information they need to choose the consumer financial products and services that are best for them. . . . The CFPB will work to ensure that financial companies make the true price clear to consumers so they can compare prices and features of consumer financial products and services and make the decisions that are best for them.”

The CFPB claims it will act as the “cop on the beat,” to patrol the consumer financial services markets and hold financial companies that break the laws accountable. The website implies that the CFPB will target the bad players, while leaving the companies that comply with applicable law and provide “real value” to customers alone to thrive in a world of “fairness.”

The CFPB, its interim director, and the team leaders are moving fast to get the CFPB ready for its July 21 deadline. Some think it’s too fast. And, some think there’s too much power in the hands of the Director of the CFPB.

One such person is House Financial Services Committee Chairman Spencer Bachus, who, with Representative Shelley Moore Capito, introduced H.R. 1121. This legislation, introduced on March 16, 2011, aims to replace the Director of the CFPB with a five-member bipartisan commission appointed by the President and confirmed by the Senate. Commissioners would serve staggered terms.

To ensure bipartisanship, no political party would have more than three members serving on the commission. As published in a statement on the website of the House Financial Services Committee, Chairman Bachus confirmed his distrust of the credit czar, by stating:

It always seemed clear to me that the Dodd-Frank Act put too much power in the hands of one person. Today’s hearing in the Financial Institutions Subcommittee confirmed it. Under the Dodd-Frank Act, the director of the CFPB is given a broad and virtually unlimited mandate to substitute his or her judgment for that of consumers and the free market. Because the CFPB might be the most powerful agency ever created, I am introducing this bill to ensure that a non-partisan, balanced approach to consumer protection prevails. Empanelling a five-member commission is an important first step in ending predatory financial practices without inappropriately limiting access to credit that small businesses and individuals want and need. We can achieve consumer protection without a credit czar.

Whether the current Republican efforts on the hill to curb the authority and speed of the CFPB will go anywhere is anybody’s guess, but continuing to watch the consumer protection wrestling match in Washington is an absolute must.

Until such time as she is replaced by Presidential appointment or by a five-member commission, if at all, Elizabeth Warren will serve as the credit czar, and remains the “go to” person for the CFPB. On March 16, Ms. Warren testified before the House Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services.

In her testimony (a must read), Ms. Warren discounted a rules-based approach to financial services oversight, claiming that too many rules bogged down industry, and put smaller competitors in the financial products marketplace at a competitive disadvantage. Focused on creating a more level playing field between consumer and industry, Ms. Warren emphasized fairness, transparency, and the ability of a consumer to make a direct comparison of financial products the consumer is considering.

“A simple, straightforward, and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders – and among different types of lenders – and foster honest competition.” Does this means Elizabeth Warren wants to see a mortgage agreement on a postcard – probably not – but it may mean the end of the 17-page deed of trust, and the 15 other documents to be signed by the consumer at the time of closing on a mortgage loan. Ms. Warren spoke of revising or eliminating outdated regulations and disclosures which significantly burden lenders and obscure the real credit terms.

Since buying a house is the largest purchase a family typically makes, the CFPB intends to take on the mortgage market first, “working to eliminate some of the confusing and duplicative paperwork that consumers receive during the home loan process, and moving toward a much simpler, shorter document that clearly spells out the information that consumers need when making the important decision to take out a mortgage.”

Dealing with credit card practices is also on the CFPB agenda. Ms. Warren extolled the beneficial effects of the CARD Act, noting, in a survey of the top industry players, the finding that the total amount consumers are paying for their credit cards is no higher, on average, than it was one, two, or three years ago, but that the pricing is clearer and more up-front.

Ms. Warren’s testimony also focused on the goals of the Office of Financial Education. She discussed the role of the CFPB in helping consumers find answers to their questions on financial products and services (also known as dealing with consumer complaints), and the interplay of the CFPB’s Enforcement Division with the Large Bank and Non-Bank Supervision teams and the CFPB’s Office of Fair Lending.

The remainder of Ms. Warren’s testimony focused on the structure and function of the CFPB, its oversight, budget, organizational chart, some of which was discussed above, and Ms. Warren’s availability to members of Congress. Ms. Warren concluded her testimony by pledging to communicate with members of the public, including consumers, consumer
advocates, and military families, and with members of the industry, including small banks and community lenders. This communication, she noted, should be “early and often.”

Ms. Warren said that the CFPB had done and planned to do a lot of listening. Finally, Ms Warren noted the role of state attorneys general – the natural partners of the CFPB – serving as the “early warning system, acting as first responders to activities that harm American families.”

We repeat – this testimony is a must read if you’re on the CFPB Watch. It is available here.

Thomas B. Hudson is a partner in the Maryland office of Hudson Cook, LLP. Tom can be reached at (410) 865-5411 or by email at

Nicole F. Munro is a partner in the Maryland office of Hudson Cook, LLP. Nikki can be reached at (410) 865-5430 or by email at

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