Consumer Agency Set to Launch

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The Wall Street Journal
By: Maya Jackson Randall
July 13, 2011

WASHINGTON--The new Consumer Financial Protection Bureau will begin supervision of the nation's largest banks next week and expects to subject the biggest of those firms to year-round supervision, the agency said Tuesday.

The CFPB, created by Congress as part of last year's Dodd-Frank financial law, said it is preparing to dispatch examiners to more than 100 banks that together control 80% of the U.S. banking industry's assets. The agency's goal is to make sure banks aren't engaging in discriminatory lending practices and that their products and services don't put consumers at risk.

The move comes as the agency, which has no confirmed director and has become a lightning rod on Capitol Hill, prepares to officially open its doors next week, a year after passage of the Dodd-Frank law.

The law gave the CFPB authority to supervise non-bank financial firms and banks with more than $10 billion in assets. The agency is prohibited from beginning supervision of non-bank financial firms, such as those that provide student, payday and mortgage loans, until it has a confirmed director. But its power to supervise firms such as Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. goes into effect on July 21.

The bureau, which outlined its plans Tuesday, has responsibility to protect consumers who use financial products such as credit cards, mortgages and other financial products from fraudulent practices.

The agency said its examiners will begin conducting their first round of on-site examinations in the weeks following July 21, after the agency has reached out to banks and their affiliates to introduce them to the agency's examination process. Examiners will inspect banks' books and records and meet with bank executives to ensure firms are complying with federal consumer finance laws. When not on-site at a bank, examiners will work out of satellite offices in Chicago, New York, San Francisco and Washington, D.C.

Most banks under the agency's jurisdiction will face periodic examinations, but the largest, most complex firms will face year-round supervision, the CFPB said. The agency will oversee 111 large financial firms.

"The new consumer agency is here to make sure that markets work for American families, and our bank supervision program is a big part of that," said Elizabeth Warren, the Harvard Law professor and White House adviser who has been tasked with preparing the consumer bureau.

President Barack Obama tapped Ms. Warren in September to serve as the agency's chief architect, although she isn't the agency's formal director. The White House has yet to nominate anyone for the top post and Republican lawmakers have threatened to block any director, regardless of party affiliation, unless structural changes are made to the CFPB.

"We are prepared to work with the CFPB as it begins its exams," said Scott Talbott, senior vice president of government affairs at The Financial Services Roundtable trade group.

In a release announcing the supervision program, the bureau said it has already "made great strides" in reviewing information from federal and state agencies about the banks set to come under its jurisdiction.

The agency expects to have more than 100 examiners on board by the end of July that have transferred from other bank regulatory agencies, such as the Federal Deposit Insurance Corp, the Federal Reserve System, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The agency is planning to bring on board several hundred more examiners over time.

"If a company is not fully compliant, the CFPB will seek corrective actions, including strengthening the company's programs and processes to ensure that such violations do not recur and, where appropriate, that remedies are instituted," the bureau said. When necessary, examiners will work closely with the bureau's enforcement team "to address harm to consumers," the agency said.

Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com

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