The Wall Street Journal
By: Deborah Solomon & Maya Jackson Randall
June 24, 2011
Consumer Bureau Identifies 6 Areas for Possible Oversight.
WASHINGTON--The new consumer-finance agency outlined six areas that could be subject to its supervision, including debt-collection firms and prepaid-card companies, as it asked for public comment on which nonbank financial firms it should oversee.
The Consumer Financial Protection Bureau's announcement Thursday marked a first step in its effort to police firms that largely have escaped federal scrutiny. The agency was set up last year by the Dodd-Frank regulatory-overhaul law.
"In recent years...companies providing consumer-financial services have grown significantly and they have not been subject to the same oversight" as banks, said Elizabeth Warren, a special adviser to President Barack Obama who is helping set up the agency. "Consumers deserve the peace of mind that financial companies, banks and nonbanks, are following the rules."
The six areas outlined comprise debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing and related activities; prepaid cards; and debt-relief services. The bureau also identified automobile loans and personal loans as large sectors that could fall under its supervision.
Business groups, which have been critical of the agency and its powers, said it is too soon to tell how the oversight system would shake out.
"It's unchartered territory," said Bill Himpler, executive vice president of the American Financial Services Association, a trade group that represents consumer-finance firms. Mr. Himpler said he has urged the agency to piggyback on existing state oversight rather than create an entirely new regulatory system.
The bureau isn't allowed to regulate nonbank firms until it has a permanent director, a position that will be difficult to fill given Senate Republicans' pledge to block anyone President Obama nominates for the job.
Republicans have said they will block the nomination unless changes are made to the agency's structure, including making it a five-member commission rather than headed by a single director. Republicans said the agency, which is independent and derives its funding not from Congress but from the Federal Reserve, has too much unchecked power. The agency is expected to begin operations next month.
Rep. Randy Neugebauer (R., Texas), who has criticized the bureau as flawed and in need of greater transparency, said the agency's move illustrates his concern about it being run in an ad-hoc manner.
But Democrats supported the bureau's efforts. "This is a perfect example of what has clearly become Elizabeth Warren's trademark since the president appointed her to get the CFPB up and running: an open and transparent process where the CFPB is asking for public input," said Rep. Carolyn B. Maloney (D., N.Y.).
The Dodd-Frank law gives the agency authority to supervise large banks and nonbank financial firms, such as payday lenders, mortgage brokers and lenders to students. The agency has authority to regulate practically any company engaging in consumer finance. In its request for comment, it asked a series of questions about how it should determine which firms should be drawn into its fold. The bureau is required to define these larger nonbank participants in a rule no later than July 21, 2012.
A senior agency official said the bureau potentially could be responsible for tens of thousands or even 100,000 firms. To help cull the list, the agency is considering requiring certain firms to register with the bureau to help it determine which companies should fall under its supervision.
Scott Talbott, senior vice president of government affairs at business lobby the Financial Services Roundtable, said the group welcomes efforts to improve transparency. "If done properly, these six areas could benefit from increased transparency and uniform standards," he said.
Write to Deborah Solomon at email@example.com and Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com