Banking Law

It appears that Liz Warren's tenure as De Facto Director of the CFPB might coninue on indefinitely. As reported by Dow Jones Newswire's Maya Jackson Randall last week, in a response by the inspectors general of the Federal Reserve and US Treasury Department to a letter sent by Representatives Bachus and Biggert ("Bachus and Biggert" sounds like the name of either a law firm or a group of drunken gluttons), the IGs alleged that the representatives are wrong to assert that the bureau could not function after July 21 without a director appointed by the president and confirmed by the Senate.

"If the bureau does not have a Senate-confirmed director by the designated transfer date, the bureau may continue to operate under the secretary's section 1066(a) authority," wrote Treasury Department Inspector General Eric Thorson and Federal Reserve Inspector General Elizabeth Coleman in a January 10 letter.

Under that scenario, it's possible that Geithner's authorities would once again be delegated to White House adviser Elizabeth Warren, allowing her to continue making key decisions at the bureau while also gaining certain new authorities from other regulators. On that July 21 date, the bureau would become more powerful even without an official chief. It would acquire existing powers from the Federal Reserve, the Federal Trade Commission and other federal agencies, and it could write and enforce consumer protection rules and examine large banks, things it can't do now.

Well isn't that special? Another end run around the legislative process and that inconvenient old piece of parchment called the US Constitution. Just what we need in this new era of good feeling.

Not that the lack of a director wouldn't impose serious constraints on the powers of the CFPB to do much of anything useful.

[T]he bureau's powers would be limited. Brand new consumer protection authorities that many supporters of the bureau fought for--such as prohibiting unfair, deceptive and abusive financial products, making disclosure form requirements and supervising non-bank financial firms--would be off limits. That means that the bureau, come July 21, could not supervise lenders and check-cashing shops. Those powers would be reserved for a Senate-confirmed bureau director.

The inspectors general noted that there are a number of scenarios that might play out between now and July 21, depending upon when the White House decides to actually nominate a director and when (or if) the Senate confirms the nominee.

The letter from the inspectors general offers up some interesting scenarios that could play out.

They noted for instance that if the Senate were to approve a director for the bureau before July 21, that director would gain some rule-making authority before July 21, and he or she could conduct supervisory examinations of non-bank institutions before that date. But the inspectors general made clear that without a director, the bureau cannot write rules before the July 21 date.

Meanwhile, the Treasury Department is considering issuing notices on rule proposals that could serve as a way to gather information and input before the July 21 so-called transfer date, they said. The inspectors general also noted that Consumer Financial Protection Bureau officials plan to launch by the end of January a webpage where the public can provide input on a number of topics.

Additionally, the inspectors general point out that the consumer bureau has made two requests to the Federal Reserve for funds. The bureau made an initial request on Aug. 11 for $18.4 million and another request on Dec. 21 for $14.37 million, according to the officials.

Representative Biggert declared that at some point, the legitimacy of any actions of the CFPB will be called into question. Therefore, why not just nominate a director and get the confirmation process rolling? Does the White House really think that, like fine wine, Liz Warren's prospects improve with age? Either she's confirmable or not confirmable, and if the White House is serious about the CFPB, it will get off the snide and nominate someone who has a chance of confirmation.

I'm not fan of the CFPB, but at some point the overhang of uncertainty becomes almost paralyzing to banks trying to plan for the future. My vote is to get on with it and let's see who's going to lead this potentially powerful (at the moment) consumer financing regulator during its formative years and what kind of agenda that leader is going to set.