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BUSINESS
Texas

Delamaide: Financial watchdog digs in

Darrell Delamaide
USA TODAY
Consumer Financial Protection Bureau Director Richard Cordray testifies before the Senate Banking, Housing and Urban Affairs Committee in November.
  • CFPB reports 270%2C000 consumers have called its complaint hot line
  • The bureau is now scrutinizing student loans
  • A new mortgage lending rule took effect this month

WASHINGTON — Next to health care reform, the recent government initiative that will have the biggest impact on Americans for years to come is the new agency created to regulate mortgages, credit cards, student loans, auto loans, and a host of other consumer financial products we all use.

At a hearing this week, Texas Republican Jeb Hensarling, chairman of the House Financial Services Committee, called the Consumer Financial Protection Bureau "perhaps the single most powerful" agency in Washington.

He did not mean it as a compliment, because he also qualified it as "the least accountable."

His remarks came as Director Richard Cordray presented the semiannual report to Congress required by the Dodd-Frank financial reform act that created the agency.

Hensarling said that the design of the CPFB, which protects the director from being fired except for cause and which shields the agency's budget from congressional action, makes "rigorous oversight" imperative.

Rigorous it has been. Maxine Waters of California, the top Democrat on the panel, noted that this week's appearance marked the 46th time Cordray or some other official from the agency had testified before Congress since the CFPB started work in 2011, yet, she added dryly, they still find time to do their jobs.

Cordray, former attorney general of Ohio, gamely took on the attacks from the Republican lawmakers, who have been unremittingly hostile to the agency, blocking the appointment of a director for months to hobble its activities.

When a sympathetic Democratic lawmaker, Rep. Jim Himes of Connecticut, said he was happy to have Cordray in front of the committee but he may have noticed not everyone was, Cordray responded, "I think everyone is glad to see me, but they have different reasons."

Cordray reported that since February 2011, some 270,000 consumers had made use of the complaint hot line to report mistreatment in mortgages, credit cards or some other personal finance issue and that the agency had often been able to intervene, and secured a total $3 billion in restitutions.

Hensarling complained, however, that the agency's rules make credit unavailable or more expensive, especially for low-income consumers. He quoted a community banker from Texas to the effect that the "one-size-fits-all" criteria imposed by the agency's new qualified mortgage rule would compel the bank to get out of mortgage lending.

Cordray countered that the one-size-fits-all characterization was inaccurate, and the rule specifically allowed the very community banks Hensarling cited to conduct business as they always have and make whatever loans they like, provided they keep the loan on their books.

What the new rule is designed to do is to have banks make a reasonable determination, according to criteria established in the rule, that a borrower is capable of paying back the loan — a response to the liar loans and predatory lending that led to the housing bubble and ensuing financial crisis.

The agency is working to make further tweaks in the rule, which went into effect this month, to respond to issues raised by mobile home vendors and Habitat for Humanity for their specific housing markets.

Given the opportunity, Cordray also discussed other areas the agency was scrutinizing. First and foremost among these was the area of student loans, which he said is showing signs of the same unbridled expansion as the pre-crash mortgage market.

Republican lawmakers spent much of their time focused either on the plight of potential mobile home owners who might now be denied credit or on the high cost of renovating the agency's leased headquarters in Washington.

Cordray noted that the leasing and renovation was under the supervision of the General Services Administration, which manages federal government properties in the capital.

He also fended off numerous questions about the agency's gathering of credit card and mortgage data, noting it was aggregated, not personally identifiable data, with safeguards against tracing identities.

It was a welcome change from what Himes called the "white-hot partisanship" of the hearing when Alabama Republican Spencer Bachus, chairman emeritus of the committee, calmly inquired about progress on specific issues such as regulation of auto lending and the growth of fraudsters pretending to offer government-sponsored financial aid.

Bachus — in his day considered as partisan as they come but who is retiring at the end of this term — appeared downright moderate in the obstructionist Congress of today.

He clearly recognizes that this new consumer protection agency, like Obamacare, is here to stay and can have an enormously beneficial impact on our daily lives.

Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron's, Institutional Investor and Bloomberg News service, among others. He is the author of four books, including the financial thriller Gold.

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