New consumer protection agency launches Thursday

Posted July 20, 2011, at 6:22 p.m.

WASHINGTON — The consumer protection agency that was created in the wake of the financial crisis launches Thursday lacking key powers that Congress had intended to give it.

The Consumer Financial Protection Bureau will begin this week to enforce dozens of rules that Congress lumped together as part of last year’s overhaul of financial regulations. It will help ensure that credit card holders have a clear understanding of the plastic in their wallets, borrowers are protected from unfair lending and military families have a dedicated financial watchdog.

Yet without a confirmed director, the agency can’t write or enforce new rules for nonbank financial companies, which made about half of the riskiest subprime loans before the crisis. The agency was created as the first federal regulator for many of these companies. Lawmakers wanted to prevent them from sidestepping rules that already applied to banks.

For payday lenders, prepaid card companies and other nonbanks, the new rules may be a little like the 1930s and the advent of the Securities and Exchange Commission, says Eugene Ludwig, who was comptroller of the currency, the top regulator for national banks, during the Clinton administration.

The lack of a confirmed director means those companies have less to worry about in the short term. President Barack Obama’s choice for the job is former Ohio Attorney General Richard Cordray.

Republicans say they will block him or any other nominee until the power of the agency and its director are scaled back. They have introduced legislation that would replace the agency’s director with a five-person commission and give Congress more control over its budget.

Supporters of the agency say it will be more effective than its predecessors because it has a single focus: making sure consumers are treated fairly by banks, lenders and other financial companies. They say Americans and the companies will be stronger financially as a result.

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