Now that President Obama has signed the Dodd-Frank Act (DFA) into law, what’s next? The media are currently obsessed with whom the President will select as the first director of the new Consumer Financial Protection Bureau (we agree it must be a strong CFPB director with a pro-consumer track record), but there is much more on the horizon.
The new CFPB will acquire much of its staff from the existing federal banking regulators. Under DFA, the existing agencies have 12 months to make the transition and this could be extended another 6 months. In addition, the Office of Thrift Supervision will be folded into the Office of the Comptroller of the Currency at Treasury.
The new CFPB staff will be charged with writing hundreds of new regulations to implement the provisions of DFA. The proposed rules will be published and open for public comment. Woodstock Institute and others will review the proposed rules, train community-based organizations and others about the issues, and submit comments.
Lobbying over the yet-to-be-written rules has already begun. Industry lobbyists are expected to try to weaken provisions that they were unable to defeat in the legislation, while Woodstock and consumer advocates will fight for strong consumer protections. Just as public support was critical to the David versus Goliath victory in passing DFA over industry objections, it will be important to maintain and increase public involvement in support of strong rules.
Under DFA, the oversight council of regulators has the authority to preempt CFPB rules in cases where they “threaten the safety, soundness or stability of the U.S. financial system.” Advocates and policymakers will need to closely monitor any exercise of this authority to ensure that the purposes of DFA are not thwarted, and that state attorneys general can act quickly to avert abuses before they rise to a crisis level.
In addition to authorizing hundreds of new rules, the DFA requires a large number of research studies and reports. For example, the newly created Office of Financial Research’s Data Center will collect, validate, and maintain data; its Research and Analysis Center will conduct research to improve regulations, as well as monitor and report on systemic risk. Advocates and policymakers can then use the data and reports to urge additional laws, rules, and research, as needed.
The financial industry succeeded in passing and defeating several controversial provisions of DFA despite broad public sentiment to the contrary. For example, some auto lenders and car dealers are exempt from CFPB coverage. Because abusive auto finance practices are rampant and vehicles are essential to obtaining and retaining employment in many areas, advocates and policymakers may need to revisit this issue in future legislation.
DFA includes some important improvements to the Home Mortgage Disclosure Act (HMDA), but the Community Reinvestment Act (CRA) was excluded from the CFPB’s purview. Upcoming hearings across the country will allow the public to have input on these issues. Woodstock Institute will be among those testifying at the CRA hearings August 12 and the HMDA hearings September 16 at the Federal Reserve Bank of Chicago. In addition, the National Community Reinvestment Coalition is leading the charge to pass the CRA Modernization Act (HR 1479).
We’ll keep you posted on other DFA developments in future communications. In the meantime, I encourage you to watch the movie “Wall Street” again before the sequel come out!