Will Innovative New Financial Regulator Be Hobbled Before It Even Starts?
Want to know what people find most confusing about mortgage disclosure documents? Then check out these heat maps created by a new government regulatory agency.
The heat maps show two model mortgage forms that the agency posted on its website. Users left more than 13,000 comments on the documents, and the maps show which parts of the form generated the most comments—which may indicate, among other things, which parts are the most difficult to understand.
This more inclusive approach to regulation is one of the hallmarks of the new Consumer Financial Protection Bureau, a politically contentious agency that will open for business this Thursday.
The agency is trying to draw in consumers, since one of its jobs is to make sure that consumers understand the financial deals they're making. It has a candy-colored website that looks more like a social media start-up than a cluttered .gov page. It turned to Twitter for a pre-launch "Open for Suggestions" campaign and then posted response videos on its YouTube page.
"Its openness thus far suggests the tantalizing possibility that it could be the nation's first open-source regulator," New York Times personal finance columnist Ron Lieber wrote last week.
Created as a result of last year's financial reform law, the agency is supposed to be a "cop on the beat" overseeing consumer financial products such as mortgages, credit cards and payday loans.
But just how effective the bureau will be is still in question, in large part because of a partisan battle on Capitol Hill over how much power the agency should have to police banks and other financial institutions.
As part of a wider attack on last year's Dodd-Frank legislation, a group of Republican legislators have promised to block the bureau from operating fully unless its ability to police businesses is put under bipartisan control.
Republicans want to replace the bureau's director—nominated by the president—with a five-member bipartisan board. They also want to make it easier for the bureau's rules to be overturned, while some are also demanding that Congress be given control over the bureau's budget.
Republicans have promised to filibuster the appointment of the bureau's director (the nominee is former Ohio attorney general, and Jeopardy star, Richard Cordray) until their demands are met.
Like many other news outlets, the financial news service Bloomberg lambasted the changes in an editorial on Tuesday, saying it would politicize the agency and make it slower.
The bureau "was designed to move quickly (like the Federal Deposit Insurance Corp.) and not ploddingly (like the SEC, where three commissioners must pre-approve nearly everything the agency does)," Bloomberg opined.
At the moment, the bureau gets its funding from the Federal Reserve. This is a good thing, Bloomberg concluded, because it means the bureau is "insulated from the partisan funding fights that have hamstrung the SEC, the Commodity Futures Trading Commission and other regulators."
It's worth noting that the SEC, whose job to investigate and prosecute companies for financial fraud was expanded under Dodd-Frank, recently had its budget cut by $222.5 million by the Republican-controlled House appropriations committee.
The bureau's opponents aren't backing down. Forty-four Republican senators have signed a letter vowing to oppose the confirmation of any agency chief until the new regulator is restructured. On Tuesday, a key Republican senator described Cordrary, the current nominee, as "dead on arrival." President Obama could bypass this issue by pushing the director through in a recess appointment . (The Senate's current recess is on hold due to debt ceiling negotiations.)
The agency won't have power, for instance, to crack down on mortgage brokers, some of which helped lead the nation into the housing debacle four years ago. It also won't have authority over other largely unregulated sectors of the financial services industry, such as payday lenders and remittance companies such as Western Union, that it was created to police.
But as the political battle rages on and media scrutiny focuses on Elizabeth Warren's political future, little attention has been given to what the bureau has actually done. And its initial efforts are interesting, especially because they show a commitment to open government and real public engagement. (Ron Lieber noted that its blog actually accepts comments—"unlike, say, the White House's.")
The bureau's mission is to create transparency in an industry dominated by confusing claims and mouse print. Good design isn't just a perk here—it's fundamental to the bureau's regulatory efforts.
Case in point: One of the CFPB's top priorities has been streamlining the federally required mortgage disclosure documents. If that sounds like a mouthful, it's worse on paper: two separate, complicated forms that are confusing for customers and, the bureau contends, also burdensome for many mortgage servicers to fill out.
The goal is to replace them with a single, two-page document that clearly answers the questions: "Can I afford this mortgage?" and "Can I get a better deal somewhere else?"
The bureau's other projects include improving transparency about credit card prices and fees, the exchange rates used for remittance transfers of money to other countries and the credit scores sold to consumers and creditors.
It's worth noting that, while the financial industry has lobbied heavily against the bureau, its efforts may actually help businesses in the long run.
In a recent letter to shareholders JP Morgan Chase's chief executive, Jamie Dimon, noted that the company does not oppose the bureau. "If the CFPB does its job well, the agency will benefit American consumers and the system," Dimon told shareholders. "Strong regulatory standards, adequate review of new products and transparency to consumers all are good things."
New Yorker financial columnist James Surowiecki has argued that the financial industry should see the creation of a bureau as a boon, not a threat. "Meatpackers hated the Meat Inspection Act of 1906, but it rescued the industry from the aftereffects of the publication of ‘The Jungle,' " Surowiecki wrote. "At a time when Americans profoundly distrust the financial industry ... [the CFPB] could turn out to be the friend banks never knew they needed."