REQUIRED READING: The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act represents the largest overhaul of the financial services industry since the Great Depression. It also significantly expands the size of the federal government, with the creation of new agencies and offices that will have an impact on how Washington regulates the financial services industry.
The most visible new entity is the Consumer Financial Protection Bureau (CFPB), which is designed to serve as an independent watchdog agency that covers all consumer financial products. The bureau's director will be a presidential appointee who requires Senate confirmation.
The CFPB will consolidate the consumer-protection responsibilities that were previously handled by the Department of Housing and Urban Development, the Federal Trade Commission and the federal financial regulatory agencies. The CFPB will have the authority to autonomously write rules for consumer protections for all institutions that offer consumer financial services or products, and it will have the authority to examine and enforce regulations for banks and credit unions that have assets of over $10 billion, all mortgage-related businesses (lenders, servicers, mortgage brokers and foreclosure-scam operators), payday lenders and student lenders, as well as other large nonbank financial companies, such as debt collectors and consumer reporting agencies.
Within the CFPB will be a new Office of Financial Literacy and a new national consumer complaint hotline relating to questionable practices at financial services providers. However, consumer complaints relating to banks and credit unions with assets of $10 billion or less will be examined by the regulators for those respective industries and not by the new bureau.
The CFPB will function as an autonomous agency within the Federal Reserve System, which will cover its operating budget. The Federal Reserve is also seeing change via the creation of a new position called vice chairman for supervision. This officer will be appointed by the president and will serve as a member of the Federal Reserve's board of governors.
Elsewhere in Washington, the Department of the Treasury is growing, with the addition of two new offices relating to regulatory oversight. The first is the Federal Insurance Office, which will gather information about the insurance industry, including access to affordable insurance products by minorities, low- and moderate-income persons, and underserved communities. This office will also monitor the insurance industry for systemic risk purposes.
Another addition will be the Office of Financial Research, which will be staffed with economists, accountants, lawyers, former supervisors and other specialists. This group will collect financial data and conduct economic analysis on behalf of yet another new entity, the Financial Stability Oversight Council, which will be made up of 10 federal financial regulators, plus an independent appointee. The Treasury secretary will be the chairman of the council, which will also include five non-voting members from the Office of the Federal Regulator, the Federal Insurance Office, and state banking, insurance and securities regulators.
The council will make recommendations to the Federal Reserve about rules relating to oversight of the financial services industry. The council can authorize putting a nonbank financial company under Federal Reserve regulation if there is evidence that the company's activities will pose a risk to national financial stability.
There are additional changes within each of the federal banking and securities regulatory agencies. The Dodd-Frank Act requires that these agencies create their own Office of Minority and Women Inclusion, which will address employment and diversity matters within the financial services industry.
Another new federal entity is the Office of Credit Ratings, which will be based at the Securities and Exchange Commission. This office will employ its own compliance staff and will be given the authority to issue fines against ratings agencies.
However, the Dodd-Frank Act removes one significant agency from the federal roster: The Office of Thrift Supervision is being terminated, and the Office of the Comptroller of the Currency will absorb the regulatory authority for this agency.