A Promising Start

Feb. 23, 2011

A controversial outcome of the Dodd-Frank Act is the creation of the Bureau of Consumer Financial Protection (BCFP). This bureau is the brainchild of Harvard professor Elizabeth Warren, who determined that consumers are not adequately protected by the existing myriad of disclosure laws. She contends that placing responsibility for protecting consumers within one government unit would elevate consumer protection to the same level as safety and soundness.

President Obama agreed, and a Democrat-controlled Congress acquiesced. On July 22 the BCFP will have domain over all consumer financial transactions, except Community Reinvestment Act (CRA) issues. CRA will remain in the hands of the prudential regulator for each bank.

Warren has been appointed to set up the BCFP. To her credit, she has publicly stated that banks are well-regulated, and that most of the problems that led to our economic recession came at the hands of nonbank lenders. These mortgage brokers, independent mortgage companies, investment banks, insurance companies and captive finance companies were either unregulated or under-regulated; Warren’s announced plan is to elevate them to the level of scrutiny required of banks.

Warren also has indicated that she will focus initial efforts of the BCFP on credit card and residential mortgage disclosures. She said she wants to simplify these disclosures—distilling them down to meaningful information—to allow consumers to understand and compare products.

We in the banking industry welcome Warren’s efforts to level the financial services playing field, so that nonbank financial companies are subject to the same onerous compliance requirements as banks. We also look forward to working with the BCFP to simplify consumer disclosures.

While the banking industry still questions whether the BCFP merits the $600 billion it will cost annually, we are optimistic that Elizabeth Warren is off to a promising start.

– S. Joe DeHaven

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