Consumer Financial Protection Bureau to open without a director

With political wrangling holding up the appointment of a leader, the federal government's new agency to protect consumers from financial fraud won't have the authority to regulate mortgage brokers and other firms outside the conventional banking industry.

By Jim Puzzanghera, Los Angeles Times

July 16, 2011

Reporting from Washington—

When it opens its doors next week, the federal government's new agency to protect consumers from financial fraud won't be quite the aggressive watchdog promised a year ago.

Because of political squabbling, the Consumer Financial Protection Bureau formally will launch without an appointed director. And the lack of leadership has real consequences.

The agency won't have power, for instance, to crack down on mortgage brokers, some of which helped lead the nation into the housing debacle four years ago. It also won't have authority over other largely unregulated sectors of the financial services industry, such as payday lenders and remittance companies such as Western Union, that it was created to police.

"It's very disappointing that the centerpiece of the president's financial reform agenda is not ready to hit the ground running," said Travis Plunkett, legislative director for the Consumer Federation of America.

Vehement opposition to the agency from Republicans and much of the financial services industry has stalled efforts by the Obama administration to install a director, a five-year appointment that must be confirmed by the Senate.

With the agency formally opening for business Thursday, there is not enough time to put a director in place. And without an appointed director, the agency legally cannot exercise expanded consumer protection powers that Congress granted it in last year's financial regulatory overhaul to try to prevent another crisis, government officials said.

Besides being unable to use its authority to regulate mortgage brokers and other financial firms outside the conventional banking industry, the agency would be denied, at least initially, broad authority to prohibit "unfair, deceptive or abuse acts or practices" or to issue rules requiring better disclosures of the terms of financial products, the inspectors general of the Treasury Department and Federal Reserve determined.

Read More: Here