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Friday, November 9, 2012

Consumer Financial Protection Bureau is going to remain the cop!

A day after President Barack Obama won a second term -- and consumer rights firebrand Elizabeth Warren of Massachusetts won a seat in the Senate -- experts said the election carries one very direct result for credit card holders:  A continuation of the crackdown on lenders and nonfinancial institutions that began in Obama's first term.
"This election ensures that the Consumer Financial Protection Bureau is going to remain the cop on the beat," said Jaret Seiberg, a Washington, D.C.-based policy analyst for Guggenheim Partners.

Republican presidential challenger Mitt Romney had pledged to repeal the legislation known as Dodd-Frank that created the bureau in July 2011. An aide clarified that the agency's powers would have been reorganized under a Romney presidency, not erased.

The bureau has already penalized costly card practices -- and handed hundreds of millions of dollars in refunds to consumers -- through settlements with major card issuers Capital One, Discover and American Express.

Also on the bureau's agenda is closer oversight of nonlenders that play a major role in consumer financial affairs. The consumer bureau has gained the authority to supervise larger debt collection companies, and will begin on-site examiners beginning in January 2012. This follows its move to supervise credit bureaus, which began in September.

"The intensity of examinations and enforcement efforts is only going to increase," Seiberg said.

'We deal with what we have'
Now that the CFPB has renewed its lease in Washington, are lenders making changes in their practices on their own?

"I don't think we have anything to comment about that," said Richele Messick, government affairs spokeswoman for Wells Fargo, one of several big banks that have come under fire for offering payday loan-like services. About any effect the election may have on consumer protection policies, she said, "It's just too early to tell."

Ken Clayton, general counsel of the American Bankers Association, said lenders have worked with the bureau and would continue to do so. "We deal with what we have," he said.

Steady on the Fed
The election also indirectly affirms current low interest-rate policies, a dollars-and-cents issue for many consumers, including credit card holders who are subject to variable rates on their balances. Romney had said he would replace Fed Chairman Ben Bernanke, whose current term ends in 2014. Romney was expected to pick a successor with a sharper eye for inflation, increasing the chances of tighter monetary policy.

Under Obama, low-rate policies are likely to continue whether Bernanke remains at the Fed or is replaced by another presidential appointee, observers said.  Janet Yellen, the Fed's current vice chair and a supporter of Bernanke's views, is mentioned frequently as a likely successor if Bernanke opts to leave in 2014.

This election ensures that the Consumer Financial Protection Bureau is going to remain the cop on the beat.
-- Jaret Seiberg
Guggenheim Partners

Another issue on the Fed's plate involves swipe fees on debit cards, which it regulates. Merchants, who pay the fee, are suing to have the 21-cent cap reduced, saying excessive charges are causing higher prices for consumers.  Consumer experts said it is difficult to predict the pocketbook impact of that fight between retailers and financial companies.

One initial reaction to the election played out on Wall Street, as stocks fell about 2 percent. Mark Vitner, economist at Wells Fargo, said the sell-off reflects investors'  fears of higher taxes on dividends and capital gains. During the campaign, Obama pledged to push tax hikes on people earning more than $250,000, a threshold which Vitner said he expects will rise to $1 million through compromise with Republicans, who continue to control the tax law-writing House of Representatives.

"It's very much a status-quo result," Vitner said. "Same president, same make-up in Congress."

Watchdog unleashed in Senate
But the makeup of the Senate, while little changed in terms of party power, will see the addition of outspoken consumer advocate Elizabeth Warren of Massachusetts. The former Harvard professor was instrumental in establishing the CFPB and was its first interim leader, but Republican opposition prevented her from becoming its permanent chief.

Warren's election strengthens the mandate for consumer protection in the face of stiff opposition, he said, and gives the bureau a form of political risk insurance. "She's definitely going to be a firewall for the CFPB" in any future attempts to dismantle the bureau, said Adam Levin, consumer advocate and New Jersey's former director of consumer affairs.

However, policy watcher Seiberg said the consumer protection bureau, as it matures and gains more experience, will need to find a balance between allowing consumers access to credit and penalizing practices that harm some consumers. In a compromise with Republicans, who are challenging Obama's recess appointment of CFPB Director Richard Cordray, the likely outcome is to reorganize the CFPB into a commission led by five commissioners, Seiberg said.

Although Warren's Senate win is highly symbolic, her former position as special adviser setting up the consumer bureau carried more clout than the role of a junior senator from Massachusetts, Seiberg added.

Republicans in the Senate "thought they had consigned (her) to the ivory tower forever," said Levin. "Instead, she's in their cloakroom and in their faces."