What Do Charles Darwin, Bullseyes, Blind Squirrels And The Consumer Financial Protection Bureau Have In Common?

First, some news: The Designated Transfer Date for the Consumer Financial Protection Bureau is six months from today (July 21, 2011). Reach down and feel the tracks...you should soon begin to feel the vibration.

For most who read this blog, the "Boom" and the "Bust" references in the title are clear enough. For that matter, the reference to "Recrimination" is not particularly mysterious. At least, it is not as mysterious as identifying the right things to focus on during this year (or so) long period whist the CFPB, State banking regulators and the Attorneys General get their feet under them and prepare themselves for the new order in the world of finance regulation. Looking back, we seem to have had a pretty solid go focusing on timely topics and issues, though a few times we may have missed the mark a bit. Regardless, we are not above patting ourselves on the back when our thoughts are later echoed by major news outlets.

Case in point: Two days ago, I gave a talk to a group of in-house counsel from North Carolina about implementation of the CFPB, where it comes from, why it came about and what we can expect going forward. In the course of preparing for the discussion, I found myself thinking about principles of Dawinistic evolution and applying them to the $180 billion/year U.S. consumer finance industry, and the challenges that it is facing in the coming years. I posited that regardless of the efficacy of the CFPB's implementation effort or the scope of its rule-making and new regulatory reach, the industry would evolve, survive and thrive. I also opined that some discrete companies and business models likely would not survive...for that is the harsh way of Darwinian evolution. It is messy. I got a couple of questions on that topic at the end of my presentation, which is always good because it indicates that someone was listening. Two days later, in perusing the newest articles on the subject, I came across this great piece in Bloomberg that articulates the same idea in a more discrete and detailed way. So for those of you who may be interested, with six months to go before the July 21, 2011, Designated Transfer Date, the evolutionary process has begun. Now, one could argue that this is evidence that BB&R is a well-evolved blog with the tools to survive. Personally, my impression is that it is way to soon to reach that conclusion, and that for now we should just allow that "sometimes, even a blind squirrel finds a nut."

Time Keeps Ticking Away for Implementation of the Consumer Financial Protection Bureau, and for Industry Readiness

Time keeps ticking away. Six months have passed and there are six to go. Dodd-Frank was signed into law on July 21, 2010, and the "Designated Transfer Date" or "DND" is July 21, 2011. That is the date on which all of the tranferor agencies (think FDIC, OCC, HUD, FTC, etc...) move their consumer protection divisions into the CFPB and under one roof. We think of it as a massive change in office space in Washington, and with the transfering federal employees will also go the rules, regulations, orders, settlements, enforcement actions, lawsuits and proposed rules that are currently in place or underway. All of that has to be ready for transfer and implementation in six months. In addition, the Bureau must be prepared to deal with inconsistencies in the various rules and/or in interpretations of the same language by different agencies. That is to say, the Bureau will have to harmonize the rules and regulations that are transfered over just as it will have to harmonize the new rules that it promulgates with those that are already on the books. No small task.

Add to that task the issue of coordination with State Attorneys General and State banking supervisors, and the broader complexity of setting up a major new federal regulatory agency and you have yourself quite a job, and one that is being undertaken, at the moment, without an appointed or confirmed Director. However, the implementation efforts currently appear up to the task. For instance, as we have previously reported, major hires have been made to head implementation teams for efforts such as "enforcement" (Richard Cordray), "Card Markets" (David Silberman), "Rule Writing" (Leonard Chanin), "Technology Operations" (Tim Duncan), "Online Engagement" (David Forrest), "Nondepository Institution Supervision" (Peggy Twohig)and, of course, "Depository Institution Supervision" (Steve Antonakes). Each of these hires has significant consumer protection bona fides, several of them are lawyers and presently the "industry" does not appear to have anyone on the inside that would be inclined to argue its perspective.

In terms of coordination, as we reported here on January 5th, the implementation efforts have extended to both the State Attorneys General and State banking supervisors. And, the details of that coordination effort are beginning to become public. Having read of closed door meetings and Memoranda of Understanding being negotiated between State regulators and the Bureau for purposes of coordinating supervision and enforcement efforts, we have watched for the first such memoranda to be made public. The first that we have seen is the one executed with the State of Maryland, which you can read here.

Finally, any industry players that have not seen Elizabeth Warren's January 14, 2011, appearance on HBO's "Real Time" political talk show can and should watch it here. And, compare it to (1) her interviews on the same program from about a year ago (she wasn't wrong, by the way). . . and here; against (2) some of her early comments from last Fall that were made to leaders in the industry. The inescapable conclusion? The Bureau may be interested in the type of financial education that Ms. Warren discussed last Fall. However, to the extent anyone believes that rule making, supervision and enforcement are not top priorities, those people are not paying attention. Currently, leaders of divisions that will focus on information gathering, supervision and enforcement are in place. The Attorneys General have their marching orders and the Conference of State Banking Supervisors is also on board. We didn't choose a "bread" clock on a whim. Time is ticking for the industry to ready itself for rapid change, otherwise, the "bread" that it has historically made may be relegated to mere memory.

Elizabeth Warren Poised to Hire Holly Petraeus as Director of CFPB Office for Service Member Affairs

According to a Washington Post report, Elizabeth Warren continues her effort to fill "key" positions within the Consumer Financial Protection Bureau with plans to hire Holly Petraeus, General David Petraeus' wife, to direct the Office for Service Member Affairs. Prior to Dodd-Frank passing, a debate raged as to whether certain automobile finance companies should fall under the regulatory power of the new Bureau. In connection with that debate, General Petraeus and others spoke about stories of which they were aware evincing predatory tactics being employed against service members and their families. Though many auto financing companies ultimately won exemption from regulation, apparently Congress was sufficiently impressed that service members need added protections and education that it included a special office for that purpose in the final Bill. And, now it appears that Ms. Petraeus, a military wife and mother of over three decades and accomplished champion of service members and consumer protection ideals as applied to them, is likely the individual that Elizabeth Warren intends to tap for the job at the Bureau. One strong woman, hiring another to lead an office devoted to protecting the men and women who themselves provide our security. Here's to wishing her great success.

More Federal - State Coordination: CFPB and State Regulators to Coordinate and Cooperate on the Supervision of Providers of Consumer Financial Service

State attorneys general are not the only recipients of cooperation and coordination with the new Consumer Financial Protection Bureau – state banking regulators have also won in this regard. The Treasury Department announced yesterday that the Consumer Financial Protection Bureau and the Conference of State Bank Supervisors signed a memorandum of understanding to establish a base of coordination and cooperation for the supervision of consumer financial services and products providers. The Department stated that this step “will promote consistent examination procedures” and “effective enforcement” of consumer financial protection laws. The Department also stated that cooperation and coordination between the CFPB and the state banking regulators will increase efficiency in supervisory resources. The Department further stated that the state regulators and the CFPB will consult each other in the procedures and practices each uses in examinations and investigations of consumer financial product providers and service providers.

Consumer finance service and product providers should take further heed – state regulators, state attorneys general, and the CFPB will be working in concert to root out any perceived violations. The CFPB has broad rulemaking authority and the authority to address violations of federal law. Some States incorporate certain federal rules into their respective state statutes and regulations. Assuming that the CFPB and States seek to understand one another, work well together and that the coordination and cooperation is effective, consumer financial service and product providers are likely to experience an increased level of investigation and enforcement.