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Consumer Financial Protection Bureau is Ready to Debut

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By Ken Trepeta

RISMEDIA, July 8, 2011—The Dodd-Frank Wall Street Reform and Consumer Protection Act has many components and one of the biggest ones is about to debut. The Consumer Financial Protection Bureau (CFPB) is slated to start operations on July 22, 2011. The truth is that work is already being done behind the scenes and has been for months now. The agency has been adding staff and setting up systems and should be ready to roll by the July date. They have also been working on some early Dodd-Frank tasks such as combining the Good Faith Estimate (GFE) under RESPA and the Truth in Lending (TIL) statement under TILA. This process, as of this writing, has been a pleasant surprise and bodes well for how CFPB will handle its numerous future regulatory endeavors.

Instead of the usual Washington regulatory dance of springing a rule on the industry and public and giving 30 or 60 days to comment and then telling the public why they are wrong and why the agency is right, CFPB is engaging the industry and the public before proposing a rule. As someone who works on regulatory issues regularly, I was first asking, “what’s the catch?” After hearing there appeared to be no catch, I started to feel genuinely satisfied and thought perhaps even my blood pressure might have dropped a bit.

CFPB is essentially taking rolling commentary or “pre-comments” on what is essentially a preliminary proposal to merge the two forms and the associated regulatory requirements. The process and the links to comment can be found at http://www.consumerfinance.gov/knowbeforeyouowe/. They’ve planned several field hearings and other tests as well as numerous fine tunings of their proposed forms and other issues associated with the merger of the rules and this will go on into the fall.

CFPB appears to be making a good start but it is important to realize the agency has numerous critical functions and additional powers that predecessors did not. CFPB will be taking over responsibility for a dozen laws that affect the housing industry and home buyers and sellers including RESPA, TILA, SAFE, HOEPA, HMDA, and FCRA. The agency will also have significant resources to enforce these laws since they will be drawing on the revenues of the Federal Reserve for their budget and not Congressional appropriations. CFPB will also take over the rule-making on the Qualified Mortgage (QM) in late July. The QM is the type of mortgage that will not be considered at risk of being predatory and is, therefore, likely to be the standard for mortgages in the future.

Perhaps most significant are the penalties and remedies CFPB can impose. CFPB can force rescissions, require restitution, limit or prohibit arbitration in certain areas, impose damages, seek injunctive relief, and impose fines that can range from up to $5,000 a day for negligent offenses to $1 million a day for flagrant violations. Real estate professionals have a limited exemption from new rule-making not done under existing laws such as RESPA. However, they will still be subject to all the laws transferred to CFPB and all rule-makings done under those laws including RESPA. With the new penalties and greater resources for enforcement, it is not hard to envision much more enforcement activity in the coming years and in fact, one should expect and plan for it.

So while CFPB has been refreshing in its approach to rule-making, it is, at heart, a consumer protection agency and it is going to take its job seriously. Those who work there see themselves as the new “sheriff in town” and they have the weapons and ammunition to do the job. Our industry should plan for this and make sure our compliance and risk management is up to the task.

Ken Trepeta is the director of Real Estate Services for the National Association of Realtors®.

This column is brought to you by the NAR Real Estate Services group.

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