Watchdog: Limit Fannie, Freddie legal fees more (AP)

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Consumer-finance watchdog probes overdraft fees (AP)

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How consumer financial watchdog will expand powers (AP)

WASHINGTON – With its first chief now in place, the new Consumer Financial Protection Bureau will start enforcing rules aimed at reining in abusive mortgage servicers, student lenders and payday-loan companies.

It will be months, though, before the agency can police other areas of consumer finance, such as debt collection and credit-reporting bureaus.

Over Republican opposition, President Barack Obama used a congressional recess appointment Wednesday to install Richard Cordray to lead the consumer finance watchdog. The bureau was created in July as part of the 2010 overhaul of the nation's financial regulations.

The idea behind the new agency was to prevent financial companies, such as mortgage servicers, from exploiting consumers. Such companies, facing scant federal oversight, committed some of the worst consumer abuses before the financial crisis.

In the past, only banks were subject to examination by federal financial regulators. And until now, with no permanent director, the bureau had authority to supervise only big banks.

Senate Republicans had vowed to block Cordray's nomination until the agency's structure was changed to allow closer congressional oversight. But Obama took advantage of the congressional break to install Cordray, a former Democratic attorney general of Ohio.

Cordray said he would immediately "begin working to expand our program to non-banks, which is an area we haven't been able to touch up until now."

That change will likely start within weeks. Agency officials who are supervising big banks have already been trained to examine non-bank financial firms.

Still, some areas of consumer finance will remain outside the bureau's reach. Aside from payday, mortgage and student loan companies, the consumer protection bureau can supervise only non-bank companies it defines as "larger participants" in their markets.

In June, the agency sought public comments on a proposal to supervise major debt collectors, credit reporting bureaus, check cashers, issuers of prepaid debt cards and debt-relief companies. The comment period has ended, and the agency is reviewing the responses. It's not clear how long the review will take.

Once the comments have been reviewed, the proposal must be revised, subjected to further public comment and then approved by the White House. This could take months or years. If the agency's proposal is approved, it will be able to send inspectors to credit bureaus and others that meet the "large participant" definition.

Here's a guide to the powers that the CFPB now holds over different categories of companies:

• Non-bank mortgage lenders and servicers:

These companies have been subject to existing laws and rules, but the agency was unable to supervise them without a permanent director. With Cordray's appointment, the CFPB can have officials monitor mortgage lenders and servicers. That might discourage any from using "robo-signers" to foreclose on borrowers without doing the required paperwork. That practice became widespread over the past decade, and no federal agency was responsible for cracking down.

• Payday lenders:

Companies that make short-term loans to borrowers with weak credit already are governed by federal laws such as the Truth in Lending Act. But there's been no federal oversight to make sure they comply. The CFPB can now send examiners to payday firms it suspects of illegal or abusive practices. The agency wants to make sure they disclose the full cost of a loan upfront so consumers can make an informed choice.

• Private student lenders:

CFPB examiners have gained the authority to examine these companies. The federal government has been cracking down on for-profit education companies whose graduates can't find jobs and have little chance of repayment. The CFPB can now require these lenders to follow existing rules and write new ones intended to guarantee that they lend fairly.

• Prepaid debit card companies, credit bureaus, money-transfer companies, check cashers, debt relief services:

These companies are subject to federal laws. But they've faced little oversight in the past. The CFPB proposed in June identifying major participants in these markets to make sure they're following the rules. It's unclear when that proposal might take effect.

• Big banks:

Banks already are overseen by the bureau, so nothing much will change as a result of Cordray's appointment. Since its creation, the agency has been placing full-time examiners in the nation's biggest banks to enforce laws and rules. It can require them to file regular reports, monitor risks they might pose to consumers and write new rules.

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Follow Daniel Wagner at www.twitter.com/wagnerreports.

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Watchdog: Fannie, Freddie abuses went unchecked (AP)

By DEREK KRAVITZ, AP Real Estate Writer Derek Kravitz, Ap Real Estate Writer – Tue Nov 29, 1:01 pm ET

WASHINGTON – A government watchdog said Fannie Mae and Freddie Mac improperly foreclosed on homeowners and cost the government billions of dollars by not holding major banks to strict underwriting requirements.

The report released Tuesday also said the Federal Housing Finance Agency gave "undue deference" to Fannie and Freddie officials and didn't scrutinize more than $35 million in bonuses and compensation to Fannie and Freddie executives.

FHFA's inspector general had previously released each of the findings on an individual basis. But the semi-annual report to Congress sketched a portrait of abuse at the two mortgage giants that the government failed to stop.

Fannie, Freddie and the FHFA didn't respond to the report. But they have responded to similar allegations in previous reports.

Fannie and Freddie own or guarantee about half of U.S. mortgages, or nearly 31 million loans. The Bush administration seized control of the mortgage giants in September 2008.

Like banks, the mortgage giants relaxed lending standards during the housing boom and didn't thoroughly check incomes and assets weren't properly checked. High-interest loans, some with low "teaser" rates, were doled out to risky borrowers.

The inspector general report found that Fannie and Freddie did not force banks to repurchase mortgages when they failed to meet strict underwriting requirements. That decision cost the government billions of dollars.

When a senior examiner at FHFA raised "serious concerns" about Freddie' process for reviewing Bank of America's mortgages, senior Freddie managers disagreed, according to the report. The managers also said they feared losing business from Bank of America if the government became more aggressive in getting money back for bad mortgages, the report said.

The report also found:

• Fannie knew about allegations of improper foreclosure practices by law firms as far back as 2003 but did not act to stop them.

• Fannie failed to establish an "acceptable and effective" way to monitor foreclosure proceedings between 2006 and early 2011.

• FHFA failed to oversee the government's signature foreclosure-prevention program, the Home Affordable Modification Program. As a result, it cost the government extra time and resources to fix it.

Fannie officials said they told a government official about false foreclosure practices in 2006. That unnamed official, who now works for Fannie's regulator, the Federal Housing Finance Agency, said he couldn't recall the conversation, the report said.

And both mortgage giants have defended executive bonuses and compensation as necessary to keep talented officials.

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Consumer-finance watchdog agency launches Thursday (AP)

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-ever 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. The Democratic-controlled Senate is unlikely to take up the measures, and Obama said Wednesday that he would veto it.

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.

Before the financial overhaul, the responsibility for protecting consumers was shared among seven agencies that also were responsible for making sure banks stayed healthy. That sometimes presented conflicts, such as when banks increased their use of steep overdraft fees. Because the regulators were focused on banks' financial performance, consumers often lost out.

Banks are nervous that the agency's rules will make it difficult to profit from some products. That would discourage them from developing new offerings that consumers might want, they say.

Until Congress confirms Cordray or another director, Treasury Secretary Timothy Geithner will serve as the agency's acting director. Elizabeth Warren, the Harvard Law School Professor tapped by Obama to help set up the agency, will return to teaching.

Here's how the new agency will impact consumer financial products and services when it gains powers on Thursday:

IMPROVED DISCLOSURE

• Mortgage costs: The true cost of a mortgage will become easier to understand. That's because there will be less paperwork and legalese for applicants to wade through. The agency has released drafts of a simplified, two-page form that would replace the more complex forms that borrowers currently receive. A final version is expected by next July.

• Credit cards: The agency has indicated that improving credit card disclosures is a top priority. Agency officials are working on a tool that would enable consumers to make apples-to-apples comparisons when shopping for cards. The credit card reforms that went into effect last February required changes to credit card statements, including clear disclosure of the cost of only making minimum payments.

• Credit scores: The agency will be responsible for enforcing rules that provide more information to consumers who apply for loans. Credit card or loan applicants who are rejected will automatically receive a copy of the credit score used as a basis for that decision. The notice will include detailed information about how the score was calculated and major factors that hurt the score. Applicants who aren't given the best interest rates will also receive the information.

CONSUMER FEEDBACK

• Complaints: For the first time, there will be a single hotline for consumers to make complaints about any financial product or service. Through its consumer response center, the agency eventually will accept feedback about banks, credit card issuers, prepaid card companies and other service providers. Officials will create a database from the tips to identify industry-wide patterns.

The new tip line will be rolled out in phases. At first, it will accept complaints about credit cards. Other products will be added in the coming months.

In the past, the only option for a bank's customers was to call its main federal regulator. That rarely helped. The Office of the Comptroller of the Currency, which supervises national banks, received hundreds of thousands of complaints about consumer lending between 2000 and 2008. Yet it took public action only a dozen times, according to the Center for Responsible Lending, a nonprofit advocacy organization.

The new tip line will be rolled out in phases, with an initial focus on complaints about credit cards.

PRODUCT REGULATION

• Mortgages: The agency will enforce a new ban on mortgage brokers receiving kickbacks in exchange for giving borrowers higher-cost loans. Because of those kickbacks, some homeowners with strong credit ended up with costly, subprime loans that they couldn't afford. Under the new rules, loan applicants will be more likely to receive the lowest rate that they qualify for.

However, applicants with weak credit might have a harder time getting a loan. Under a separate rule that the agency will enforce, lenders must make sure that borrowers can afford to repay a loan. Lenders will scrutinize loan applicants' income, assets and credit histories more carefully. Other rules in the financial overhaul might lead lenders to require higher down payments that poorer borrowers can't afford.

The agency also is expected to propose new rules governing companies that collect homeowners' mortgage payments and foreclose on people who don't pay. Those companies foreclosed illegally on thousands of homeowners as an unprecedented number of Americans defaulted on their loans.

• Credit cards: The agency oversees the card industry, and enforces year-old limits on fees and billing practices. With such limits in place, companies can't make money on borrowers who are less likely to repay their debts. Since the rules took effect, consumers with weak credit are receiving fewer card offers, despite an increase in the overall volume of mail from credit card companies.

ADVOCACY

• Military Families: Through its Office of Servicemember Affairs, the agency will seek to protect military families from predatory lending and other problems often seen in that community. It's led by Holly Petraeus, a longtime advocate and wife of Gen. David Petraeus.

Servicemembers enjoy special legal protections because of the difficulty paying bills when overseas. For instance, foreclosures on active-duty servicemembers are illegal, and interest rates on certain debts, including mortgages and credit cards, must be lowered to 6 percent.

• Senior citizens: The agency will operate a separate office aimed at serving this community, which will continue to grow as baby boomers retire. They face a particular vulnerability to scam artists because many live on a fixed income.

ENHANCED SUPERVISION

• Bank supervision: Agency officials will begin monitoring the treatment of consumers by the 111 biggest banks that have total assets of over $10 billion. This group represents more than 80 percent of the industry. Smaller banks and credit unions are not part of this program, which will include on-site examinations, although they must follow rules established by the agency.

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On the Web: www.consumerfinance.gov, www.scoreinfo.org, http://www.consumerfinance.gov/knowbeforeyouowe/.

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South Korea watchdog probes Hyundai Capital data breach (Reuters)

SEOUL (Reuters) – South Korea's financial watchdog launched an investigation on Monday into the leak of personal information from South Korea's Hyundai Capital, the consumer finance unit of Hyundai Motor Group, a Financial Supervisory Service official said.

Hyundai Capital said personal information on about 420,000 of its 1.8 million customers was leaked when an unidentified hacker attacked its database.

The company said in a statement on Sunday it was conducting its own investigation into the incident, citing the possibility that passwords on some customer accounts may have also been compromised.

Hyundai Capital deals with auto financing, personal loans and home mortgages and is jointly owned by South Korea's largest automaker Hyundai Motor Co and GE Capital, which holds a 43 percent stake.

(Reporting by Ju-min Park; Editing by Jonathan Hopfner)

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