Consumer Financial Protection Bureau's Newly Established Supervisory and Enforcement Authorities Require Senate-Confirmed Director

The Inspectors General of the Treasury Department and the Federal Reserve Board (together, the "Inspectors General") and Special Assistant to the President Elizabeth Warren respectively responded to letters from members of Congress questioning, among other things, the Consumer Financial Protection Bureau's ("Bureau") ability to operate without a Senate-confirmed Director. The Inspectors General concluded that the Bureau could perform most of its responsibilities under the direction of Treasury Secretary Timothy Geithner. However, the Bureau could not exercise "newly-established authorities," including the power to supervise nondepository institutions and to write regulations and enforce prohibitions against unfair, deceptive, and abusive practices in connection with consumer financial products without a Senate-confirmed Director. Because the confirmation of a Director is expected to be contentious, and unless a nominee is appointed shortly, it is possible that the Bureau will not be able to exercise certain of its newly approved powers until after the July 21, 2011 Transfer Date


On January 10, 2011, the Inspectors General responded to Rep. Spencer Bachus (R-Ala.), Chair of the House Committee on Financial Services, and Rep. Judy Biggert's (R-Ill.), Chair of the Subcommittee on Insurance, Housing, and Community Opportunity, request for information concerning the Bureau's establishment and its vacant Director position. In their report, the Inspectors General outlined the actions taken to establish and fund the Bureau and affirmed that, with or without a Director, the Bureau will have the authority to "prescribe rules, issue orders, and produce guidance related to the federal consumer financial laws" after the designated transfer date. A January 31 letter by Warren in response to Bureau critic Rep. Randy Neugebauer (R-Tex.), Chair of the Oversight and Investigations Subcommittee of the House Financial Services Committee, followed the Inspector Generals' report. Warren's letter addressed Neugebauer's concerns about the Bureau's proposed budget, organizational structure, and rulemaking procedures.


These letters are significant to financial institutions for two reasons. First, they provide insight into the Bureau's organizational structure, budget projections, and policy-making strategy. As important, the letters disclose the Bureau's concern that, without a Senate-confirmed Director by the designated transfer date, the Bureau may not exercise new authorities established by the Dodd-Frank Act, including the supervision of nondepository institutions and prohibition of unfair, deceptive, and abusive practices in connection with consumer financial products and services.


Steps Taken to Establish the Bureau


Section 1066 of the Dodd-Frank Act granted the Secretary of the Treasury interim authority to perform Bureau functions and "administrative services" in support of the Bureau until the designated transfer date. Secretary Geithner delegated his authority to "stand up the Bureau, design its structure, identify and hire staff, and set initial goals and priorities" to Warren and members of the "Bureau Implementation Team." The Team currently consists of approximately 140 members, but Warren indicated that the Bureau's ranks will swell "by several hundred over the course of the year."


While the Treasury's interim authority does not include the power "to prescribe rules under the Bureau's rulemaking authority," the Treasury may issue advance notice of proposed rulemaking and make public statements regarding the Bureau's intent to regulate particular areas of law. Warren stressed that the Team already has "begun laying the groundwork in order to be prepared to receive rulemaking authority" on the designated transfer date. According to Warren, "cost savings, improved regulatory compliance, and simplified consumer disclosures" are among the factors being considered in setting rulemaking priorities. Warren specifically identified two policy initiatives as priorities: "(1) consolidating duplicate and overlapping mortgage disclosure forms mandated by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) and (2) simplifying credit card agreements to ensure that customers fully understand fees and finance charges." As to the latter, Treasury's Bureau Implementation Team already has surveyed the nine largest card issuers about current practices and future plans, resulting in its February 22, 2011 CARD Act Fact Sheet. The Fact Sheet indicates that while the CARD Act has given consumers a better understanding of credit card costs, confusion still exists one year later.


Retained Bureau Authority After the Designated Transfer Date


Much of the Inspectors' General Letter focuses on the Bureau's ability to enforce its mandate after the designated transfer date. If the Bureau lacks a Director on the designated transfer date, Secretary Geithner (and his designee) may exercise most transferred powers on behalf of the Bureau until a Director is confirmed. Specifically, even without a Director, the Bureau may prescribe rules and enforce actions under TILA, RESPA, the Fair Credit Reporting Act, and other consumer financial laws that were previously within the authority of other federal agencies. The Bureau also has the power to replace the existing federal enforcement authority in all lawsuits pending as of July 21, 2011 that relate to "consumer financial protection function[s] transferred to the Bureau." Particularly, banks, savings associations, and credit unions will fall under the Bureau's authority, even in the absence of a Director


Terminated Bureau Authority After the Designated Transfer Date


Without a Director in place on the designated transfer date, the Bureau will not have the power to prescribe rules relating to, conduct examinations of, or supervise nondepository institutions under Section 1024 of the Dodd-Frank Act. Nor will the Bureau garner the authority under subtitle C of the Dodd-Frank Act to prohibit any unfair, deceptive, or abusive acts or practices performed in connection with consumer financial products and services, whether by a depository or nondepository institution. However, other agencies, such as the FTC, will retain jurisdiction over unfair practices.


Looking Forward


The designated transfer date will not affect most of the enforcement powers granted to the Bureau. Notably, in the absence of a confirmed Director, the Secretary of the Treasury (or his designee) may still exercise rulemaking and enforcement authority over depository institutions. However, without a Director, the Bureau may not take action to prohibit abusive practices, and it is questionable whether it can prohibit unfair and deceptive practices by nondepository institutions.


As significant, without a Director, the Bureau stands to lose most, if not all, of its authority over nondepository institutions. This includes a wide variety of institutions, including mortgage servicing companies, which have been increasingly subject to both federal and state scrutiny. Warren, recently appointed Supervision and Enforcement Division chief Richard Cordray, and others have made numerous public statements regarding a need to regulate and investigate these companies as part of their role at the Bureau. Until a Director is named, however, it appears it will be impossible for them to do so.


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Lee Ann Russo




Jayant W. Tambe

New York



Albert J. Rota




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