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Net Net: Promoting innovation and managing change

Rep. Capito: I Give Dodd-Frank a 'D-'

Dodd-Frank, love it or hate it, will be one of they key stories this week as some significant deadlines come up this weekend.

But while "D-F", as I like to call it, is indeed a newsworthy item, there are several key positions that are vacant.

As of July 8th, the positions of the FDIC Chair, Comptroller of the Currency and the CFPB are all vacant. That's right—vacant. Kind of ironic would you say that while Uncle Sam is facing a fiscal crisis, these positions are open.

After all, they're only the leaders in the divisions that are supposed to regulate the banks and "protect consumers." No biggie. Not like the government could plan a year in advance to fill the jobs.

I caught up with Rep. Shelley Moore Capito, Chairman of the Subcommittee on Financial Institutions and Consumer Credit, on these openings and the landmark financial regulation that is sure to keep Wall Street on its toes for some time as regulators are in the process of making the rules they will need to follow.

LL: Some of my contacts are just shaking their heads at these openings. What do you think?

Rep. Capito: I certainly share their frustration.   None of these vacancies is a surprise. We’ve known they are coming for well over a year.  It is astounding that the Administration has not nominated someone to serve as director of the CFPB.    Not only are we coming out of a tremendous period of turmoil in the banking industry, the Dodd-Frank Act requires hundreds of new regulations to be written by federal regulators.   Now is not the time for numerous openings in leadership positions at bank regulators.

LL: You introduced H.R. 1667 To postpone the date for the transfer of functions to the Bureau of Consumer Financial Protection if the Bureau does not yet have a Director in place. Are you confident it will pass in the overall Senate?

Rep. Capito: I think there will be support for a bill to delay the transfer of certain powers if there is no director in place.  It’s commonsense.  You wouldn’t set up a new company without the proper leadership on board, would you?  It baffles me that my bill, and other bills to improve the CFPB, have received so much harsh criticism.  I think it’s dangerous to characterize any suggestion to makes changes to the CFPB as “anti-consumer.”   No law is perfect, including Dodd-Frank.

That said, I certainly hope the President nominates a Senate confirmable candidate as soon as possible so this issue becomes moot.

LL: Who would you want to see as CFPB Director?

Rep. Capito: I am not picking favorites at this point.  As I’ve said all along, I support a five-person commission to lead the CFPB.

LL: Do you think "non-bank" financial institutions (payday lenders check cashing agencies and specialty mortgage shops ) be under the jurisdiction of hte CFPB?

Rep. Capito: The Dodd-Frank Act provides for these entities to be regulated by the CFPB.   It is too early to tell what extent the bureau will use their authority.   Many of these institutions are regulated at varying degrees at the state level.  Some states, like my home state of West Virginia, have banned certain practices.   We need to make sure there is proper oversight of these institutions.

LL: Many would argue it was the big banks and the specialty mortgage companies that were the biggest contributors to the mortgage crisis.

Wouldn't that mean the CFPB should over see them?

Rep. Capito: The CFPB will have consumer supervision duties for institutions above $10 billion in assets so they will cover the “big banks.”   Non-bank financial institutions will also be covered by the CFPB although it is too early to tell to what extent the bureau will use their authority.   The mortgage crisis was not only a consumer issue, but also an issue of safety and soundness.   It will be critical for the CFPB to work well with the prudential regulators to ensure that consumer safety and the safety and soundness of institutions are intertwined.

LL: You were on the final conference committee. Dodd-Frank is celebrating its one year anniversary. How would you rate the landmark legislation. There are many unknowns still out there. Do you think Congress understands the magnitude of the legislation they passed?

Rep. Capito: D- There is no doubt that our nation’s financial regulatory structure needed to be updated and revamped. That said, simply creating another bureaucracy and putting more laws on the books will not in itself guarantee consumer protection.  We have heard from Elizabeth Warren that her intent with the CFPB is to remove outdated or unnecessary regulations as they develop new regulations for consumer finance. We have yet to see evidence of this.  

All regulators should be using this time to assess the regulations within their agencies to ensure we are not just simply adding another layer of regulations.    I would have preferred to streamline agency power and put in place a more nimble regulatory structure instead of passing a bill with thousands of new rules and regulations.

I won’t give it an “F,” however, because I think it’s counterproductive to write it all off.

LL: Jon Corzine told me Wall Street needs more time to react to Dodd-Frank. Has anyone in Congress thought of this? The ramifications if Wall Street's infrastructure was not ready for the change?

Rep. Capito: I am more concerned about how smaller financial institutions like community banks and credit unions will fare as the CFPB starts to implement rules and regulations.  Although many claim that community banks and credit unions are “exempt” from the CFPB, they are not free from the rules and regulations the CFPB will be producing. 

Large institutions already have armies of compliance officers and attorneys ready to absorb new rules and regulations; small institutions don’t have that luxury and every extra compliance officer they hire is less resources that can be directed towards growing economies across the nation.

A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."


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