Consumer Bureau Plans Enforcement Based on FTC’s ‘Stable’ Model

The U.S. Consumer Financial Protection Bureau plans to follow enforcement procedures “based largely on the existing, stable model” used by the Federal Trade Commission, according to a document on the bureau’s website.

The bureau, which began operations July 21, used the document to outline how it will seek documents, conduct hearings and deal with witnesses as it begins oversight of financial firms’ dealings with consumers.

Because the rules track what the FTC already does, “they present an existing, stable model of investigatory procedures that should not impose new compliance costs,” the bureau said in the document.

President Barack Obama proposed creating the consumer bureau as part of what became the Dodd-Frank Act after lenders were accused of reaping profits by preying on borrowers before the subprime mortgage crisis. The agency, which will operate independently, will regulate products ranging from home mortgages to payday loans.

The posted rules by themselves give little insight into how forceful the consumer bureau will be in dealing with lenders, according to Howard Beales, a former FTC official who is now professor at George Washington University in Washington. The bureau could choose to resolve issues through supervision, the process of examining bank books and nudging them to make changes, rather than through lawsuits.

‘Framework for Enforcement’

“This says what the framework for enforcement is,” Beales said in a July 26 interview. “It says nothing about the mix between supervision and enforcement.”

Peggy Twohig, the bureau’s assistant director for non-bank supervision, and Steve Antonakes, the assistant director for large-bank supervision, hinted in a July 22 blog post that the agency may rely heavily on supervision.

“Generally as a last resort, examiners will coordinate and work closely with CFPB’s enforcement staff to implement appropriate enforcement actions to address violations of law that harm consumers,” Twohig and Antonakes wrote.

The consumer bureau also posted rules governing how it will conduct reviews in which firms can contest administrative penalties. Those procedures will be similar to those used by prudential regulators such as the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, said Richard Riese, a senior vice president at the American Bankers Association Center for Regulatory Compliance.

“It doesn’t get much visibility because very few processes go all the way to administrative adjudication,” Riese said in an interview yesterday.

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