Consumer Protection Agency to Launch Thursday

The United States Consumer Financial Protection Bureau (CFPB)—which came out of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress last year—will commence its operations today, seeking to regulate credit cards, mortgages, and other financial products and services.

Previously, the activities of the financial industry were overseen by seven separate federal agencies, all focusing on different parts of the system, which lead to bureaucratic and regulatory inefficiency. The Dodd-Frank legislation created the CFPB to be the sole government supervisor of Wall Street.

The bureau will operate within the Federal Reserve, but will also be affiliated with the Treasury Department on an interim basis.

According to the bureau’s website, its mission is “to make credit products and other consumer financial services safer and easier to understand” for the consumer. It claims to achieve this goal “by making sure that prices are clear up front, and risks are easy to see.”

One of the primary goals of the bureau is to improve disclosure and transparency. For instance, in terms of mortgages, the bureau plans to replace the complex forms that borrowers currently use with a simplified, two-page form that is easier to understand. Credit card reforms would also make terms easier to understand for the consumer, for instance requiring companies to make clear the cost of only making minimum payments.

In addition, credit card and loan applicants that are rejected will be able to receive a copy of the credit score that was used for evaluation, and will include information detailing factors that may have lowered the score.

The Wall Street reform bill also requires the agency to enforce more restrictive regulations on mortgages and credit cards. Banks and other mortgage lenders will be required to make sure that borrowers are able to repay a loan through closer scrutiny of their income and credit history. The credit card industry will also face limits on fees and certain billing practices.

Most importantly, consumers will be actively able to participate by contacting the bureau with complaints about financial products and services through a tip line that will be rolled out in phases. By combining consumer complaints with their own research, the bureau will be able to more closely study and examine industrywide practices and trends.

While it is clear that the CFPB will be a strong regulatory force in the post-collapse financial environment, its short-term future is still uncertain. The bureau will be unable to enforce many of the original regulations Congress intended it to, as the agency is lacking a director. Many of the nonbank financial institutions that were the targets of those regulations will avoid oversight in the meantime.

While many expected the architect of CFPB, Elizabeth Warren, to head up the agency, President Barack Obama tapped former Ohio Attorney General Robert Cordray for the job, and Warren is expected to return to her teaching career.

Cordray must be confirmed by the Senate before assuming his post, however, and Senate Republicans have vowed that they will block his confirmation until the authority of the agency is scaled back, its leadership replaced with a five-person commission, and Congress given more oversight over its budget.

In the meantime, Treasury Secretary Timothy Geithner will fill in as the bureau’s acting director.