The Consumer Financial Protection Bureau Takes Over Regulation of Lenders, Mortgage Companies, and Title Companies

Last week, on July 21, administration of many regulations crucial to the mortgage, real estate, & title industries officially transferred to the new Consumer Protection Financial Bureau (“CFPB”), an agency that was created last year by the Dodd-Frank Act (the “Act”). Consumers and all members of the Real Estate/Mortgage industries will be impacted by the success or failure of this new agency.

Regulations now administered by CFPB include those governing Loan Officer salaries and commissions, Mortgage Originator registration; Truth in Lending (Regulation Z), and RESPA. The Agency’s jurisdiction includes enforcement of the regulations in addition to the power to draft new, and modify existing, regulations.

In the short term, the transition to the new agency should be seamless. The CFPB has indicated that all existing regulations, as well as interpretations and written guidance issued by the former agencies, will be honored.

Over the long term, I am optimistic that the impact of the CFPB will be positive, although its success is by no means assured.

In my view competent regulation gives clear guidance to regulated industries, levels the playing field so no players have an unfair advantage, minimizes the costs of compliance, encourages (or at least doesn’t inhibit) innovation, and provides a rational structure for industry to operate. It includes adequate, but not oppressive, enforcement. It accomplishes all of this while protecting consumers, which is the prime objective of the CFPB. Indeed, if by protecting consumers the CFPB eliminates the unscrupulous players, it is a benefit to the industry as well as consumers. Effective enforcement is one aspect of leveling the field so that the rest of us can compete on price and service, and it eliminates the disadvantage we have competing against those who ignore the rules.

The early indications are that the CFPB has the right idea – that they “get it.” For example, on the CFPB Blog two staff members wrote: “Our examination process [i.e., enforcement] will strive for transparency, efficiency, and fairness. It will not be about ‘gotcha.’ ” (A Consumer- Centered Supervision Program, by Peggy Twohig and Steve Antonakes, CFPB blog, July 22). Also, in its initial major rule-writing task of combining the Truth-in-Lending and Good Faith Estimate forms into one form, the CFPB is actively seeking consumer and industry input in ways that are nothing short of revolutionary for a Federal Agency. The CFPB is meeting with experts, interviewing consumers, lenders, and brokers in six cities across the country, posting successive iterations of the proposed form on its web site and inviting comment, and seeking input in other ways. The Agency is doing all of this before issuing a proposed regulation, receiving comments, and adopting the new form as part of a final operative regulation.

I am hopeful that these good intentions will result in good regulation. We shall see. As a new agency the CFPB must prove itself to consumers, the real estate-related industries, and Congress. More importantly, even if it starts out strong, will it revert over time into the old dysfunctional model? Only time will tell.

One obstacle is political. Some Republicans in Congress are doing their best to hamstring the Agency before it even gets started. They are advertising that they will filibuster the nomination of any Director unless Congress is given increased oversight over the Agency. Lacking a Director, the CFPB will be unable to operate effectively. I am not sure they aren’t “shooting themselves in the foot” (unless their aim is to undermine CFPB and insure its failure). More political control usually results in politicized regulation which is the last thing anyone needs.

If the CFPB is able to overcome the obstacles and evolve into an effective regulatory agency consumers, real estate related industries, and everyone else are winners. If successful, the CFPB could be a model for other Federal agencies. If not, we really need to come up with something else, as the structure the CFPB replaced wasn’t working.

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