Consumer finance watchdog: a birthday, but no one comes

The first anniversary of American consumers' new financial watchdog came and went without fireworks. The Consumer Financial Protection Bureau (CFPB) didn't trumpet its accomplishments. Its opponents didn't blast it for regulatory overreach. For an agency that (depending on your point of view) was either going to save consumers or bind and gag them with red tape, the silence was a little surreal.

The delayed reaction may have something to do with the agency's late start (its director didn't take the reins until January, when President Obama used a recess appointment after fierce congressional opposition from Republicans). Maybe opponents are waiting to see how the CFPB resolves big, sensitive issues in the next few months. Or maybe it's a summer lull (the agency's first-year report is due soon).

"They've gotten off to a good start," says Claes Bell, a journalist for Bankrate, a Florida-based firm that tracks interest rates on mortgages, auto loans, and credit cards, among others. "They've created a user-friendly website and a streamlined complaint process." But "if you look at a list of things they've done to financial industries, they haven't done that much."

Since it officially began operating July 21, 2011, the CFPB has helped students navigate loans and financial aid, advised consumers on how to avoid credit-card fees, and forced Capital One to pay up to $210 million in fines and reimbursements for pressuring customers to buy or retain additional credit-card services, such as credit monitoring and payment protection. The Capital One enforcement action has drawn the most attention. Not only was the settlement a lot higher than those that other federal agencies have imposed on banks traditionally, the CFPB detailed specific violations and which policy changes the company had to make to be in compliance.

They "don't look or sound like any other federal agency that you've ever heard of," says Travis Plunkett, legislative director at the Consumer Federation of America in Washington. "They're living up to their promises."

Banking officials are leery, however.

"The bureau's made a lot of people ooh and ahh, but we're still trying to figure out what that means for long-term development," says Richard Riese, senior vice president of the American Bankers Association's Center for Regulatory Compliance. For one thing, the agency went after the bank rather than the third-party vendors, whose customer-service employees were responsible for the violations. For another, the agency's expected ruling on mortgages is adding to banks' hesitancy to make loans.

Sometime after November's election, the CFPB is due to rule on what constitutes a qualified mortgage. If the rules are too loose, lenders could once again offer interest-only and other questionable mortgages that homeowners have no chance of paying off. If the rules are too tight, banks could restrict mortgage lending even more, choking off a housing recovery. A big question: If banks follow the lending rules, are they safe from consumer lawsuits?

If not, "that will substantially impede growth of the mortgage and housing market, make it difficult for large numbers of Americans to get loans, and will be a violation of a policy we've had for many years that says we will make mortgage loans available to everyone who has good credit," says Peter Wallison, codirector of American Enterprise Institute's program on financial policy studies and former general counsel at the US Treasury Department during the Reagan administration. "What we are seeing up to this time is not encouraging."

For example, by not defining what it means by "abusive" credit practices, the CFPB is putting businesses at constant risk of lawsuits, not only from the federal government but state authorities as well, he says. Also, if the agency continues to hand out stiff penalties for wrongdoing, then financial institutions may avoid lending to high-risk bor-rowers for fear that the CFPB might issue fines for the fees attached to the loan.

For now, the controversies are low key. "Although financial industry trade groups may have objected in the first place, they've shown a cooperative attitude," says Mr. Bell of Bankrate.

The agency is likely to generate more controversy as it pushes into new areas of finance. Future areas of focus include prepaid credit cards, overdraft practices for checking accounts, arbitration clauses in credit-card and other financial agreements, and reverse mortgages.

In June, the CFPB released a report showing rising risks for homeowners who take out reverse mortgages. It found that more than 9 percent of such borrowers were at risk of foreclosure because they hadn't paid taxes or insurance on their homes. "We will use our supervisory and enforcement authority, as appropriate, to monitor the markets and take action against unfair, deceptive, or abusive practices," CFPB Director Richard Cordray promised in prepared remarks when the report was released.