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Partnering: The Consumer Financial Protection Bureau and State Attorneys General

By Richard Cordray

Richard Cordray
National Association of Attorneys General (NAAG) Spring Meeting
Remarks as Prepared for Delivery
March 8, 2011

Thank you, Attorney General Cooper, for that kind introduction, and thank you to NAAG for inviting me to speak with you about the new Consumer Financial Protection Bureau. I carry warm greetings to you from all of our growing team, and most especially from Professor Elizabeth Warren, who has been leading our efforts to stand up the Bureau

I am honored to be here along with Len Kennedy, who is serving as our General Counsel, and Raj Date, who is our Associate Director of the Research, Markets and Regulations Division. Len comes to the consumer agency with a distinguished career as a lawyer for the FCC and as the General Counsel of Sprint/Nextel. Raj was one of the first people writing about the need for a consumer agency after he left his prior career in banking to start his own think tank. I feel extremely lucky to find myself now surrounded by such talented colleagues who are holding us to the highest standards as we focus on our role of protecting consumers.

I want to talk with you this morning about the purposes we understand ourselves to be serving at America’s new Consumer Bureau. Like any other creature of federal law, our aims start with the authority vested in us by our enabling statute. In Title X of the Dodd-Frank Act itself, the Congress identified our principal objectives. Let me emphasize at the outset that we are committed to building a strong partnership with you to achieve each of these goals.

You can think of these five objectives as our mandate. They are broad and they are lofty, but with your help, we can continue the work of making them concrete and meaningful for American families. I am going to talk a little bit about each one of them in turn.

First, Congress told us we must ensure that consumers are provided with timely and clear information so they can make responsible decisions about financial transactions. Let me give you an example. Before the financial crisis hit this country, loose practices abounded in the mortgage origination market. Sellers were willing to arrange just about any kind of loan, no matter how poorly the borrower’s capacity was documented, as indicated by terms like “SIVA” (“stated income/verified asset”) and “NINJA” (“no income, no job, no assets”). In addition to this sort of sloppy or fictional underwriting, they offered teaser rates, masked the actual terms, and accepted yield spread premiums that rewarded them for driving people into more expensive loans than they actually qualified for. Taken together, these practices misled consumers into thinking that they could afford these loans, and that these loans were the best deals they could get.

When consumers sign a contract – for a home loan, a credit card, or any other type of financial product or service used in their personal and household affairs – they should be able to say, “I understand this agreement and all the important terms.” And they should also be able to know that no unwelcome surprises are hidden from them. The Consumer Bureau is dedicated to eliminating the kinds of tricks and traps that were used to ensnare consumers in financial products they could not afford and that too often drove them into foreclosure or bankruptcy. You see the effects of these tricks and traps on your constituents firsthand, and I know that you are continuing to try to clean up the mess in each of your own states. We can learn from your experience about what information consumers really need to know in order to make not just better financial decisions, but wise financial decisions, and we look forward to tapping into your expertise in this area.

Second, Congress stated that we are to protect consumers from unfair, deceptive, or abusive acts and practices, and from discrimination. These are areas where you have preceded us. We will work directly with you, as well as with other Federal agencies like the FTC, to set enforcement priorities. We know that you have a lot of experience bringing these kinds of cases under your state laws, and we look forward to bringing our new authority to bear against bad actors in the marketplace. Rooting out these bad actors will be good not only for consumers, but also for community banks and other financial companies that are committed to honest dealing and quality customer service. These enforcement efforts will complement our other initiatives to promote fair, transparent, and competitive markets: it will help to ensure that those with a core business model built around treating people fairly – offering beneficial products in a transparent manner – will be the winners in the marketplace.

Third, Congress directed us to reduce unwarranted regulatory burdens by identifying and addressing outdated, unnecessary, or unduly burdensome regulations. Here is an outstanding example: Two distinct federal agencies are responsible for administering the Truth in Lending Act and the Real Estate Settlement Procedures Act. These two agencies have had discussions, going back for fifteen years, about harmonization and simplification of the mortgage disclosure forms mandated under each law – which you no doubt have noticed kills whole forests to provide the paper for ordinary real estate closings. Now, the Consumer Bureau is aiming to accomplish within one year what has been contemplated but not achieved for a decade and a half – and we think we have made real progress even before that one-year clock has started ticking. Success in this enterprise will mean clearer and more focused information for consumers, along with reduced costs for lenders – a true win-win for the American economy.

Fourth, Congress has emphasized that we are to enforce Federal consumer financial law consistently, without regard to the status of a financial services provider as a depository institution, in order to promote fair competition. What does this mean? To a large extent, this means doing the same sort of thing that law enforcement officials like you strive to do every day – enforce the law against unlawful practices in a way that levels the playing field for law-abiding individuals and businesses. As mandated by Congress, we will particularly seek to level the playing field so that bank and non-bank providers of consumer financial products and services can compete freely and fairly – which always redounds to the benefit of consumers. And we will be in a great position to do this because, for the first time, there will be one agency with supervisory authority over non-bank providers, as well as all of the nation’s largest banks.

With new technology and fierce competition, financial institutions are developing new and fast-changing products and services that cut across existing regulatory frameworks. Payday lenders find themselves competing directly with newer financial products. We all have seen how debit cards and prepaid cards are now crowding into payment markets once ruled by checks and then by credit cards. These developments make it all the more crucial that we have a view of the whole playing field. Having that full picture – and leveling that playing field by treating the participants in the marketplace on par, regardless of their corporate structure or charter choice – is a new approach that will benefit consumers, financial institutions and other providers, and the broader economy. If we learned anything from the financial crisis, it is that gaps in Federal oversight can contribute to systemic failure by allowing unwarranted and unsustainable risks to be created in the economy.

Of course, attorneys general know as well as anyone that leveling the playing field between bank and non-bank providers of consumer financial products and services will require sustained resources in the form of consistent and reliable funding. The non-bank sector consists of tens of thousands of companies, and it has never before been supervised by a Federal agency. That is why it is so critical that the Consumer Bureau retains its independent funding model, a model that will allow it to respond rapidly and appropriately to legal violations and changes in the marketplace over time. Congress has depoliticized the funding of Federal banking supervisors consistently in the past, and the continuation of that precedent is critical for the Consumer Bureau to provide effective oversight over the non-bank sector and a level playing field on which banks and non-banks can compete equally. That is the way our regulatory world should look moving forward.

Fifth, and finally, it is our objective to make sure that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation. To this end, I would note again that Raj Date is heading up our Research, Markets and Regulations Division. His part of the Bureau will track market practices, developments, successes, and failures, and make market data accessible and transparent to businesses and consumers – consistent, of course, with legitimate confidentiality concerns and privacy interests.

Already, we are working to understand the consequences of the recently enacted CARD Act by collecting information and data from credit card companies and other sources. The early returns indicate that in response to the CARD Act, issuers have eliminated some of the practices that can confuse customers and cost them money they did not reasonably expect to pay. Some issuers have gone further than the law requires to curb re-pricing and over-limit fees. These are examples of how good data collection and analysis can help us understand how the market is responding to new laws and what new products and services may be emerging. At every opportunity, we will work to make our policy decisions based on hard data and rigorous analysis.

So these are the five main objectives that Congress set for us. I say “us” here because Congress authorized you to help the Consumer Bureau accomplish these purposes.

As you know, I was sitting on the other side of this podium less than a year ago. I know first-hand that you have been doing the important work of protecting consumers for a long time. You understand better than anyone the kinds of problems that consumers – your constituents – face from the ground up. We will be depending on your expertise and your experience as we work to achieve our mutual objectives. We will do this not just because the Dodd-Frank Act generally provides for your authority to enforce the consumer bureau’s governing statute and related regulations, but also because we can be more effective and efficient by working with you to police the financial marketplace. And I know that we will very much enjoy the opportunity that Congress has given us to do this important work together.

General Cooper’s Presidential Initiative is extremely well-timed, and we look forward to showing financial companies and consumers across America that we can and will be forging a strong partnership that presents a united front in the fight for fairness in the marketplace.

Thank you for having us join you here today, and for all that you do on behalf of our country.

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