Director or No, Wall Street’s Newest Cop Is Ready for Duty

Richard CordrayMichael Houghton for The New York Times Richard Cordray runs the Consumer Financial Protection Bureau’s enforcement division.

Even as Congress squabbles over who will lead the new consumer watchdog, the fledgling agency is gearing up to police Wall Street.

Over the last several months, Republicans have scrutinized the early moves of the Consumer Financial Protection Bureau, introducing measures to slash its budget and ordering investigations into the scope of its authority. The attacks, which center on Elizabeth Warren, the Obama administration official setting up the bureau, have stymied the White House from naming a director.

But the vacancy will not delay the bureau’s debut as the newest cop on Wall Street.

On July 21, the bureau will formally open its doors and will be able to send its examiners into Goldman Sachs, JPMorgan Chase and other financial titans — whether or not it has a director. It can also issue new rules for big banks, examine their books and file enforcement actions, all crucial steps for an agency that was born only a year ago.

“They have almost unlimited ability to go after the banks on consumer issues,” said Jaret Seiberg, a policy analyst at MF Global. “They’re saying, ‘We’re the new sheriff in town.’ ”

Still, the bureau’s full impact “will be muted” for now, Mr. Seiberg said. The bureau, for instance, needs a chief before it can oversee some less regulated corners of the finance industry, including tens of thousands of payday lenders, mortgage firms and debt collectors.

It is unclear how long the vacancy will last.

When President Obama appointed Ms. Warren to steer the bureau through its early days, he stopped short of nominating her as its first director. Some administration officials contend that Ms. Warren, a Harvard law professor and noted consumer advocate, is too controversial to win Senate confirmation.

In May, 44 of 47 Republican senators told Mr. Obama that they would oppose any nominee unless the bureau was subjected to additional Congressional oversight. Democrats, who would need 60 lawmakers to bring a vote on a nominee, have floated the prospect of a recess appointment.

The bureau, meanwhile, will have plenty to keep it busy.

Even without a director, the bureau can write rules and issue orders on Day 1 about the consumer protection laws it is inheriting from the Federal Trade Commission and the Federal Reserve, among other regulators. For example, the trade commission will hand over authority to enforce certain restrictions on telemarketing, while the Fed is transferring its power to oversee mortgage disclosure rules.

The bureau had already announced plans to revamp mortgage disclosure forms that had long confused would-be home buyers. In May, the bureau brought out two prototypes for a simplified, one-page form that would combine and replace existing documents.

Under the authority of the Treasury secretary, Timothy F. Geithner, the bureau on July 21 can examine the books of some 110 banks that have more than $10 billion in assets, according to a report issued in January by the inspectors general for the Treasury Department and Federal Reserve. The bureau plans to watch for major violations of mortgage disclosure laws and other infractions at the firms that could cause consumers to unwittingly sign up for risky loans. The bureau also will scrutinize whether credit card forms issued by big banks are misleading.

The bureau says it will hire several hundred staff members, roughly half of whom will work in the supervision and enforcement departments. Over time, the bureau hopes to hire nearly 200 bank examiners and enforcement officials from other federal banking agencies like the Federal Reserve and the Federal Deposit Insurance Corporation, according to a person with knowledge of the situation.

Government employees at other regulatory agencies whose positions are being shifted to the new bureau will have to apply for the roles like any other candidate. The bureau has until October to pick which federal employees it wants to hire.

If the examiners spot wrongdoing at banks, the bureau can file lawsuits right away — no director needed. The bureau’s enforcement division, run by a former Ohio attorney general, Richard Cordray, is deciding which types of cases to prioritize, according to the person close to the bureau. While Mr. Cordray can bring only civil actions against banks and their executives, the bureau does have authority to refer matters to the Justice Department if it appears that criminal laws were broken.

Tips from whistle-blowers and consumers could prompt the bureau to take action, too. Several hundred consumers have lodged complaints with the agency over the last year, some stemming from the financial crisis. Roughly half center on mortgages.

While the bureau’s new authorities have Wall Street bracing for a crackdown, the banks’ lightly regulated competitors may receive a small reprieve. Absent a director, the bureau doesn’t have the authority to oversee payday lenders, mortgage brokers and other nonbank lenders, according to an interpretation of the statute by Treasury and Fed inspectors general. Ms. Warren is not even allowed to identify the nonbank financial firms she plans to regulate, the report said.

But some questions remain about whether these firms, which spent millions of dollars lobbying Congress last year to avoid the bureau’s authority, are entirely off limits. Raj Date, one of Ms. Warren’s deputies and a leading contender to be the bureau’s director, said at a Consumer Bankers Association conference in Orlando on Tuesday that the agency’s ability to oversee nonbank firms was a “more nuanced question,” acknowledging that the statute was open to interpretation.

Those firms, meanwhile, are steering clear of the controversy surrounding the bureau.

“We are not participating in the politics of this,” said Steven Schlein, a spokesman for the Community Financial Services Association of America, the leading trade group for payday lenders. “We want to see the bureau staffed with qualified people who will take the short-term lending industry and needs of consumers seriously.”