Bankruptcy

The Foreclosure Fraud Settlement

By Adam Levitin

The inter-regulator fight over the proper parameters of a foreclosure fraud settlement are really highlighting the changes in the financial regulatory world.  What we're told is that the OCC and Fed are urging a weak settlement, while FDIC, the state AGs, and the Consumer Financial Protection Bureau (CFPB) are pushing for a serious settlement.  

Parts of this line up look quite familiar, but parts are new and exciting.  

There's nothing new or surprising about the OCC protecting (rather than regulating) the banks. Similarly, it's not surprising to see the Fed back the banks, although, the Fed tends to be less gung-ho than OCC in these matters (and I would note that there isn't necessarily unanimity within any agency on these issues). It's also no surprise to see the state AGs on the other side, pushing for regulation. Gosh, this just sounds like a Wachovia v. Watters redeux (one of OCC's most shameful moments in recent years---putting its preemption agenda ahead of consumer protection in the mortgage space. Now where did that get us?)  

Some parts of this line up are new, however, and exciting. Already, we're seeing just how important the Consumer Financial Protection Bureau will be. The CFPB means that there is a voice at the table advocating consumer interests, not bank interests. That's a hugely important counterweight to OCC. This was one of the most important reasons for creating the CFPB--forcing the policy debates to exist on an inter-agency level, rather than making consumer protection concerns take a back seat within agencies.    

This line-up also shows the significant changes that have occurred at FDIC.  Not so long ago, FDIC had been rather permissive about rent-a-BIN in the payday context. Changes at the FDIC started to be apparent at least back in early 2008 when it teamed with FTC to sue a trio of credit card banks for unfair and deceptive practices, and the FDIC has emerged from the financial crisis as an agency that has taken the lead on a lot of financial reform issues, particularly those related to foreclosures, mortgage servicing, and securitization.

The real question in all of this is where does Treasury come out? Or put more precisely, what does Timothy Geithner want? If Geithner backs OCC and the Fed, it will perceived as yet another example that Treasury is captured by the banks. If Geithner backs FDIC, CFPB, and the AGs, this will be taken as an example of the adminstration's hostility toward business.

Full post as published by Credit Slips on March 03, 2011 (boomark / email).