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This is an online companion to “Building the new consumer regulator,” an interview with Raj Date, presidential advisor for the Consumer Financial Protection Bureau. The interview appeared in the December 2011 ABA Banking Journal Digital Magazine.

 

 

 

By Steve Cocheo, executive editor

 

 

The Consumer Financial Protection Bureau is in one way a very recent idea--one brought into existence in a post-crisis atmosphere--and only a comparatively few months old. In other ways, it is an old idea, in that its combination of the functions of seven different agencies’ consumer protection functions is a variation on many ideas for regulatory reorganization and the creation of a “super-agency.” Those ideas go back decades.

 

However bankers choose to look at it, the bureau is here, and, political winds notwithstanding, not likely to go away, either.

 

 

Building the bureau
At present, the bureau has much of the feel of a startup organization and that is bolstered by its lack of a permanent director, says Amy Brachio, partner at Ernst & Young, who has worked with large banks getting ready for their first meetings with CFPB examiners. But experienced regulatory consultants and former regulators interviewed indicate that the bureau has done a decent job in getting things under way.

 

“There’s a huge challenge to getting something like this started, and people need to expect a certain amount of startup growing pains,” says Jo Ann Barefoot, co-chairman at Treliant Risk Advisors and a former top official at the Comptroller’s Office.

 

Another expert, only recently arrived in the consulting world after a long career at OCC, is Ann Jaedicke, managing director at Promontory Financial Group. Jaedicke played a role in transferring OCC’s consumer regulatory functions, and some staff, to the new entity.

 

“They’ve done a pretty good job of bringing the bureau up, and making it function,” says Jaedicke.

 

Some who have been watching this effort have criticized the bureau for taking too long to get back to bankers who have questions. Others point out that much of what the bureau has done to date is only a start, and that, in one observer’s words, “not a lot has crossed the finish line yet.”

 

The bureau keeps moving on, however. And more is coming. “You have to look at the bureau on a long-term basis,” says Alan Kaplinsky, chair of the Consumer Financial Services Practice at the Ballard Spahr law firm in Philadelphia. Kaplinsky points out that so far the new bureau has been working with regulations and functions that already exist. Once a director has been approved by the Senate—whenever that may be—the bureau will no longer be tethered strictly to earlier laws and regulations, Kaplinsky says, and he suggests that this will result in much new ground being broken. (There is always the possibility that congressional Republicans will win their push to revise bureau leadership, moving from the director format to a board or commission setup. An early December attempt to press a vote on the bureau’s director nominee failed.)

 

“And that’s going to create a lot of legal work,” says Kaplinsky, “to put it mildly.” His firm has been adding lawyers to get ready for the extra demand.

 

 

“Feel” and culture at CFPB
Experts who have worked with the fledgling regulator’s staff thus far report a different atmosphere there than they have seen in the consumer protection ranks of the legacy prudential banking regulators.

 

Each of the financial regulators has a culture of its own, both in Washington, and in the field. The Federal Reserve, for example, is known for a higher degree of formality, perhaps rooted in its marbled headquarter halls and its board-based leadership structure.

 

More than one expert interviewed told ABA BJ of an unusual degree of collegiality among the staff of the bureau.

 

“One of the new people there told me it feels more like working at a think tank,” says Treliant’s Barefoot.

 

This is perhaps not a complete surprise, given that Raj Date, the Special Advisor to the President who is effectively running the bureau while it awaits a director, came to the new organization from a think tank that he started.

 

While a vibe like that can produce a rich stream of fresh ideas and can encourage “out of the box” thinking, some who have worked with the bureau find it a bit harder to deal with than a more straightforward, more hierarchical organization.

 

“It will make for a lively environment,” says one longtime regulator who now works with banks on compliance issues, “but someone will have to blow the whistle and be the one to make a decision.” Right now, says another expert, the bureau is characterized by a lot of airing of views, and outsiders can find it difficult to be sure who the decisionmaker actually is.

 

One factor that may be influencing the atmosphere at CFPB is a commonality of interest among employees there.

 

“My impression is that people are attracted by the clear vision of what the CFPB is going to be doing,” says Promontory’s Ann Jaedicke. “This is the type of work that these people want to do.”

 

Ernst & Young’s Amy Brachio has been impressed by a sense of common purpose she’s seen among bureau staff.

 

Raj Date’s speeches often mention the intent that the bureau’s work will be “data driven.” Brachio says banks under CFPB examination authority should be ready for a great deal of scrutiny. These include both horizontal (tightly focused exams over many bureau institutions) and vertical examinations (top to bottom standard exams of a single institution)—as part of that data driven push. She suggests that banks should work on ways they themselves can use internal data to address their own compliance issues, ahead of the new regulator’s orders. Brachio believe CFPB is wired to expect quick turnaround when problems are identified.

 

Some say that the data driven philosophy sounds good, but that some of the newest data-gathering regimes put in place by the government aren’t strong enough yet to serve as governing tools.

 

“At first the bureau will be data-influenced,” says one expert. “Right now the data’s not good enough for more than that.”

 

 

Tips for working with CFPB
With examinations having already begun, an important matter to remember is that the bureau’s new examination manual, issued in October, makes it clear that UDAAP “is the point of the spear,” according to Richard Riese, head of ABA’s Compliance Center. Once CFPB’s director steps into place and the bureau’s full powers become activated, this will become increasingly apparent. (UDAAP stands for Unfair, Deceptive, and Abusive Acts and Practices.)

 

Ernst & Young’s Amy Brachio suggests that banks meeting with CFPB examiners need to weigh carefully who sits down with the team first. Bureau staff seem especially interested in how larger banks manage compliance both on an overall basis as well as at the line-of-business level. She also warns that an examination basic will still apply--be ready to demonstrate that action has been taken on past exam recommendations. Bureau teams will be checking the previous exams done by the prudential regulators, to see what was found the last time, she warns.

 

For her part, consultant Jo Ann Barefoot hopes that both banks and the bureau will learn to communicate with each other.

 

“I hope the bureau will listen well, to understand the institutions,” says Barefoot. “And I hope that the bureau is going to make their standards clear before they penalize banks for not meeting them.”

 

 

This is an online companion to “Building the new consumer regulator,” an interview with Raj Date, presidential advisor for the Consumer Financial Protection Bureau. The interview appeared in the December 2011 ABA Banking Journal Digital Magazine.  

 

 

 

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