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Consumer Watchdog Walks Regulation Tightrope With Bankers

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The newest advocate for consumers in Washington met with bankers Tuesday to talk about how their actions helped cause the 2008 financial disaster, while reassuring them that his agency is not on any ideology-inspired witch hunt.

“Now, to some understandably weary mortgage market practitioners, and possibly to one or two of you in this very room, the prospect of an energetic regulator is not exactly what you want to hear about,” Raj Date, interim leader of the Consumer Financial Protection Bureau, said in Chicago at the 98th annual conference of the Mortgage Bankers Association. “Some might be anxious: Is the consumer bureau going to make my life harder? So let me be clear: The Bureau believes in smart regulation.”

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The relationship between the bureau and the association could be described as tense. The mortgage bankers group criticized the CFPB’s attempt to make mortgage forms easier for consumers to understand, and it has lobbied Congress to limit the bureau’s power by taking direct control over its budget (currently the bureau is funded through fees charged to financial institutions), and replacing its single leader with a board of directors.

In his speech, Date did not directly address either issue. Rather, he reiterated the bureau’s perspective, first enunciated by Elizabeth Warren, its first interim leader, that the recent Great Recession was caused by lenders’ lack of transparency regarding mortgage terms, by incentives that encouraged lenders to emphasize short-term fees over the long-term quality of mortgages, and by the practice of many lenders to go shopping between different state and federal regulators to find the most lax enforcement regime.

“The result was a race to the bottom in lending standards,” Date said.

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Now that the CFPB has consolidated enforcement of federal consumer protection laws into one agency, lenders will have a harder time venue shopping. But Date emphasized that the agency will exercise its broad power fairly.

“In short, we won’t shoot from the hip” he said. ”We won’t reason from ideology. We won’t press a political agenda. Instead we are going to be fact-based, transparent, and measured.”

Image: quinn.anya, via Flickr.com

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