St. Louis Federal Reserve Bank President and CEO James Bullard expressed concerns this week over the method of funding for the Consumer Financial Protection Bureau (CFPB).
Under the Dodd-Frank Act, the Federal Reserve is required to direct 10% of Federal Reserve System expenses to the CFPB next year, 11% in 2012 and 12% in 2013 (where it will stay fixed going forward).
‘The amount of money allocated in the law is not based on any careful assessment of what the needs of the bureau will be as it attempts to fulfill the mandate of the Congress with regard to consumer protection,’ Bullard said in a speech this week. ‘Nor is there any mechanism for changing these amounts going forward, should market conditions change, or if the needs of the bureau change.’
The CFPB, which is supposed to be operational by the middle of next July, will be tasked with writing consumer protection rules for a broad swathe of lenders, including payday lenders, pawn shops and other entities that have not previously been subject to federal oversight. The CFPB will also monitor institutions for compliance and establish several offices, including a consumer complaints unit, a fair lending office, an office of financial education and an office of financial protection for older Americans.
‘Setting up the Bureau and meeting its congressional mandates is no small task,’ Bullard said, noting that the CFPB will also have to submit numerous reports to Congress.
According to Edward Kramer, executive vice president of regulatory programs for Wolters Kluwer Financial Services, financial institutions are evaluating their staffing levels and qualifications to make sure they are ready for oversight by the new CFPB.
"The CFPB's rulemaking authority doesn't just apply to banks and credit unions," Kramer says. "It also applies to mortgage and auto finance companies and essentially any financial institution that is considered a "non-bank.' This authority could make the CFPB one of the most powerful regulatory agencies in the U.S. and result in significant compliance and operating costs for institutions of all sizes and types."