Red Flags Raised Over Consumer Protection Bureau's Funding Method

Federal Reserve Bank of St. Louis President James Bullard expressed concern on Monday that the newly created Consumer Financial Protection Bureau (CFPB) may not be funded appropriately to handle the responsibilities that will be required of it.  Bullard made the remarks at a panel discussion hosted by the Bank on "The Direction and Implications" of the new bureau.

Bullard said that proposed CSPB funding was 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."

The Bureau, currently being set up under the aegis of the Treasury Department, will ultimately function as an independent bureau housed within the Federal Reserve.  The Fed, however, will have no oversight over the CFPB; its only role will be to fund it.  The Dodd-Frank Financial Reform Act which created the Bureau requires that the equivalent of 10 percent of the Federal Reserve System expenses be allocated to the CFPB in 2011, 11 percent in 2012, and 12 percent in 2013 and beyond. 

Bullard said there is no doubt that the proposed mission of the CFPB was significant.  It is responsible for writing consumer protection rules and regulations for all banking institutions and to examine all banks with $10 billion or more in assets, a definition currently encompassing 82 insured depository institutions holding 73 percent of all banking assets, for compliance with those regulations.  CFPB will also have rule-writing authority for a large number of institutions that have previously been outside of federal oversight such as check cashers, payday lenders, and pawn shops.  The Bureau will probably have to coordinate with state regulatory agencies that have experience regulating these entities.

The Fed President also pointed to the July 2011 deadline for having the organization up and running including several mandated offices for research, community affairs, consumer complaints, fair lending, and several other divisions of responsibility; the number of reports it must make to Congress, and the competing interests the Bureau will have to consider.

Bullard said he is also concerned that there is no mechanism for changing the funding levels set by the Dodd-Frank Act going beyond the cap it reaches in 2013 if market conditions or the needs of the Bureau change.

It has been widely reported that Republicans member of Congress have their sights set on crippling the CFPB as the first step in repealing or "reforming" the Dodd-Frank bill.