Treasury can sketch out rulemaking areas before Consumer Financial Bureau opens, memo says

Introduction

Before the controversial Consumer Financial Protection Bureau (CFPB) officially opens its doors on July 21, the Treasury Department may issue preliminary notices to the public about some rulemaking areas the new bureau will tackle, according to a government memo.

In a 34-page memo to Spencer Bachus, the Republican chairman of the House Financial Services Committee, the inspectors general of the Treasury Department and the Federal Reserve lay out the bureau’s start-up funding, planned website, and priorities.

Bachus, one of many Republicans who opposed creation of the bureau in the Dodd-Frank financial regulation law, demanded details about CFPB operations after Republicans won control of the House in the November. Bachus expressed concern at that time about whether Elizabeth Warren, a Harvard professor advising Treasury Secretary Tim Geithner on how to launch the new bureau, would propose specific regulations before it formally opened for business.

“While the Secretary is not authorized to prescribe rules prior to the designated transfer date, Treasury is considering whether it will issue advance notices of proposed rulemaking (ANPRs), which according to Treasury, do not contain substantive rules, but are ‘a means of gathering information and input, before the transfer date’,” said the memo dated Jan. 10.

As part of its consumer protection duties, the bureau will employ examiners to help regulate U.S. banks holding $10 billion or more in assets. In the months between now and July, the Treasury Department has the discretion to allow bureau examiners to participate “on a sampling basis” in large bank examinations by other banking regulators, the memo said.

Two of Warren’s top policy priorities for the bureau are consolidating duplicate mortgage disclosure forms required by two federal laws, and simplifying credit card agreements to help consumers understand fees and finance charges, the memo said. “Professor Warren told us that cost savings, improved regulatory compliance, and simplified consumer disclosures are among the factors being considered in establishing the rulemaking priorities,” it said.

Until the U.S. Senate confirms a director of the bureau, the Treasury Department is responsible for organizing it. The Dodd-Frank reform law mandated the creation of the bureau as an independent agency with an annual budget of around $500 million that is directly funded by the Federal Reserve without Congressional review.

The CFPB has already received nearly $33 million in start-up funding from the Fed, the memo said. Its draft budgets for fiscal 2011 and fiscal 2012 will be included in the White House’s annual budget request to Congress, which is usually released in early February.

The memo also noted that if a bureau director has not been confirmed by the Senate by July, the Dodd-Frank law allows the Treasury Secretary to carry out some – but not all –

functions of the bureau. For example, the secretary could conduct examinations of large banks and carry out consumer protection functions related to mortgage licensing and real estate disclosures, but not prohibit unfair, deceptive, or abusive acts linked to consumer financial products and services.

Another detail of note: The bureau will launch its own website by the end of this month “where the public can provide its input on any number of topics,” including enforcement issues, the memo said. Currently, the CFPB has only a vague, one-page website within the Treasury Department’s website.