A Ship Without A Captain: What Director-less CFPB Will Actually Look Like

As the July 21, 2011 Dodd-Frank implementation date rapidly approaches, it is becoming increasingly likely that the Bureau of Consumer Financial Protection will not have a Senate-confirmed director by the time its new authority begins. While some have tried to downplay the significance of the CFPB assuming authority without a director, it could seriously hinder the bureau’s ability to do so much as open its doors, let alone effectively regulate.

According to Title X of Dodd-Frank, the director is appointed by the President with the advice and consent of the Senate. Once confirmed, the director serves as the sole head of the CFPB. Dodd-Frank enumerates the director’s responsibilities clearly: appointing and directing all bureau employees; establishing all offices within the bureau; reporting to Congress; submitting budget requests to the Federal Reserve; requiring reports of covered firms; and prescribing rules and issuing orders and guidance, among others.

Additionally, there are a number of responsibilities assigned to “The Bureau,” though Dodd-Frank does not establish who has authority over The Bureau, if not the director. Assuming a case can be made for some other leadership structure, however, The Bureau is tasked with exclusively enforcing federal consumer financial law. The Bureau also may take action against those participating in unlawful acts, engage in joint investigations, conduct hearings and adjudication proceedings, and commence civil action against those who violate federal consumer financial law.

While this would suggest that The Bureau would have some capabilities absent a director, it may not be quite that easy. First, Dodd-Frank at times fails to clearly delineate where the exclusive authority of the director begins and ends as opposed to The Bureau as a whole. While this could arguably help The Bureau perform its duties without a director, there’s a second, stickier problem. The director has the sole authority to staff The Bureau, as well as to request and budget funding from the Federal Reserve. Consequently, even if The Bureau could find the statutory authority to perform some regulatory functions, it would be hard-pressed to do so without funding or personnel.

If a director is not confirmed by July 21, Dodd-Frank permits two courses of action. First, the Secretary of the Treasury may submit a request to Congress to delay the implementation date. The law requires that implementation cannot be delayed for more than 18 months, meaning that the Administration would only gain 6 months to get a nominee confirmed. Alternatively, Dodd-Frank states that the Secretary of the Treasury is authorized to perform the functions of The Bureau until the director is confirmed by the Senate, though it is unclear whether this authority expires on July 21.

Secretary Geithner has not yet announced plans to take either of these steps, but with only a month to go and Republicans in the House and the Senate vowing that they will go to any means necessary to block the confirmation of presumptive nominee Elizabeth Warren, delaying the implementation may be the Secretary’s only option.

Top Financial Regulators Set to Begin Examining Systemic Risk

Treasury Secretary Tim Geithner announced this morning that the newly-created Financial Stability Oversight Council (FSOC) will hold its inaugural meeting on October 1 at the U.S. Treasury Department.

A centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), the FSOC consists of the nation’s top financial regulators and is charged with identifying and responding to systemic risks posed by large and interconnected bank holding companies and non-bank financial companies to the broader U.S. financial system. Proponents of the legislation believe that the FSOC’s broad oversight authority is necessary in order to eliminate the reoccurrence of “too-big-to fail” in the U.S. financial and political arenas.

Geithner, who will serve as the FSOC chairperson, will be joined in the meeting by seven voting members and three non-voting membership. Conspicuously absent from the list is Elizabeth Warren, who is serving in her new role as “Special Advisor” to the White House to help stand-up the Consumer Financial Protection Bureau (CFPB), and who presumably, cannot participate in the FSOC without the formal title of CFPB Director. Once a CFPB director is nominated and confirmed by the Senate, he or she will be voting member of the FSOC as pursuant to H.R. 4173. The law also states that the FSOC will meet at least on a quarterly basis.

Many in the financial industry are continuing to express significant concerns surrounding the powers of the FSOC’s research and analysis arm—the Office of Financial Research (OFR)—which is granted broad authority to collect information, including sensitive data, from regulatory agencies, bank holding companies, and non-bank financial companies to help the FSOC assess various risks to the U.S. financial system. The OFR will be led by a director appointed by the president and confirmed by the Senate, who will serve a six-year term. The OFR is bound to be a topic of discussion during next week’s FSOC meeting.

Below is a list of the FSOC’s voting and non-voting members that are expected to participate on October 1:

Voting Members
Ben Bernanke — Chairman of Federal Reserve
John Walsh — Acting Comptroller of the Currency
Mary Schapiro — Chairwoman of the U.S. Securities and Exchange Commission
Sheila Bair — Chairwoman of the Federal Deposit Insurance Corporation
Gary Gensler — Chairman of the Commodity Futures Trading Commission
Edward J. DeMarco — Acting Director of the Federal Housing Finance Agency
Debbie Matz — Chairman of the National Credit Union Administration

Non-Voting Members
John M. Huff — Director of the Missouri Department of Insurance, Financial Institutions, and Professional Registration
William S. Haraf — Commissioner of the California Department of Financial Institutions
David S. Massey — Deputy Securities Administrator of the North Carolina Department of the Secretary of State, Securities Division

Finale - President Obama Signs the Dodd Frank Wall Street Reform and Consumer Protection Act into Law

Earlier today, President Obama signed into law the Dodd Frank Wall Street Reform and Consumer Protection Act—marking the completion of the legislative road and the beginning of the regulatory road for the financial reform bill that is now the law of the land.

In his remarks at the bill signing, the president thanked congressional leaders, praised the effort, and described the package as a "...set of reforms to empower consumers and investors, to bring the shadowy deals that caused this crisis into the light of day, and to put a stop to taxpayer bailouts once and for all."

The 2,300 page bill now falls into the hands of the Treasury Secretary and other financial regulators to execute. In the coming days and weeks, Financial Reform Watch will be "watching" for many things including whom the president nominates to be the head of the new Consumer Financial Protection Bureau; when the first meeting of the Financial Stability Oversight Council will be scheduled; and which proposed rules begin to flow from the financial regulators tasked with implementing the mandates of the Dodd Frank Act.