Consumer Financial Protection Bureau’s 1st 6 Months

Six months have elapsed since the Consumer Financial Protection Bureau’s (“Bureau”) July 21, 2011 launch, during which “consumer financial protection” was consolidated from 7 federal agencies into the Bureau charged with protecting consumers and increasing financial transactions’ transparency.

Following a controversial director appointment, the Bureau implemented a federal “nonbank,” supervision program for mortgage companies, payday lenders, and private education lenders, released a “Supervision and Examination Manual” of banks, thrifts, and credit unions with assets exceeding $10 billion, and launched an interactive website and a Facebook page.

Bureau’s Creation and Powers
Created by Title X of the Consumer Financial Protection Act of 2010 (“Dodd-Frank Act”), the Bureau is an independent agency under the Federal Reserve System charged with protecting consumers and increasing financial transactions’ transparency.

The Dodd-Frank Act provides the Bureau with broad regulatory and rulemaking authority under numerous existing federal consumer protection laws along with the power to enact new regulations and take enforcement and supervisory actions regarding consumer financial products and the entities that deal in them, i.e., banks, financial institutions, mortgage companies, payday lenders, and private education lenders.

The Bureau embodies the consolidation of “consumer financial protection’s” from 7 federal agencies into 1 agency comprised of 6 divisions: Consumer Education and Engagement; Supervision, Enforcement, Fair Lending, and Equal Opportunity; Research, Markets, and Regulations; General Counsel; External Affairs; and Chief Operating Officer.

The Bureau regulates "consumer financial products and services" encompassing:
•extending credit and servicing loans, including mortgages;
•extending or brokering leases of personal or real property;
•providing real estate settlement services;
•engaging in deposit-taking activities;
•transmitting or exchanging funds;
•acting as a custodian of funds or any financial instrument for use by or on behalf of a customer;
•selling, providing, or issuing stored value or payment instruments;
•check cashing, check collection, or check guaranty services;
•providing payments or other financial data processing products or services;
•collecting, analyzing, maintaining, or providing consumer report information or other account information; and
•collecting debt, including foreclosing on property.

“Bureau Director” Appointed
Although it appeared that Harvard Professor Elizabeth Warren, the Bureau’s purported “architect”, would be appointed, “polarization” issues caused President Obama to nominate Richard Cordray as the Bureau’s initial director.

As Ohio’s former Attorney General, Cordray pursued claims against the consumer financial services industry including “unfair or deceptive acts or practices law” violation actions against mortgage servicers.

After 44 Republican senators indicated that they would not approve any nomination until the Dodd-Frank Act was modified to dilute the Bureau and its director’s powers, and the Senate voted down the nomination in December 2011, President Obama seated Cordray as the Bureau’s director using his executive authority.

Director Corday’s first official act was implementing a federal non-depository, or “nonbank” supervision program, defined as any company providing “consumer financial products or services but does not have a bank, thrift, or credit union charter”.

Under the new program, the Bureau will oversee nonbank business in particular markets including regulating mortgage companies, payday lenders, and private education lenders.

Additionally, the Bureau may supervise “larger participants” in the “consumer financial services industry” including debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit, and money transmitting.

Bureau issues “Supervision and Examination Manual 1.0” and Launches Web Page

In October 2011, the Bureau released version 1.0 of its Supervision and Examination Manual (“Manual”), a guide to its supervision of banks, thrifts, and credit unions with assets exceeding $10 billion and tool for examining consumer products and services providers other than depository institutions.

The Manual incorporates Federal Financial Institutions Examination Council developed procedures (including its Uniform Interagency Consumer Compliance Rating System) and provides “mortgage servicing industry” “examination procedures”.

The Bureau also launched a colorful, interactive and user friendly website (www.consumerfinance.gov) and Facebook page, which has about 13,000 “likes.”

“Attorney Client Privilege” Waiver
Although federal law provides that a federally chartered institution furnishing attorney-client privileged materials to a “Federal banking agency” during an examination does not waive the privilege, the Bureau is not a statutorily defined “Federal banking agency”. 12 U.S.C. §1828(x)(1).

Rather than skip receiving privileged materials or adding itself to the “Federal banking agency’s” definition, the Bureau concluded that it is a “Federal banking agency” arguing that because it inherited supervisory authority from the other federal banking regulators, it also inherited access to privileged materials and the attorney client privilege protection.

Unfortunately because the Bureau only inherited partial supervisory authority from the federal banking agencies, the privilege may not apply to the banks’ production and rendering the produced information vulnerable to discovery in litigation or a Freedom of Information Act request.