Cordray: Consumer agency to target shadow banks

Reuters, by Dave Clarke, WASHINGTON, Thu Jan 5, 2012

President Obama after Cordray was appointed to head the Consumer 

Financial Protection Bureau in Cleveland, January 4, 2012. 

(Credit: Reuters/Kevin Lamarque)

(Reuters) - In his first speech as head of the Consumer Financial Protection Bureau, Richard Cordray said his agency will immediately begin overseeing lenders outside the banking industry, and will take a tough stance against any financial players that break the law.

In a controversial move President Barack Obama on Wednesday installed Cordray as the CFPB's first director through a recess appointment after Senate Republicans blocked a vote on his nomination last month.

The bureau, created by the 2010 Dodd-Frank financial oversight law, is charged with policing consumer markets for products such as credit cards and home loans.

"The consumer bureau will make clear that there are real consequences to breaking the law," Cordray said in remarks prepared for delivery on Thursday at the Brookings Institution, a Washington think-tank.

Cordray is a former Ohio attorney general who was not afraid to file legal challenges against banks, including Bank of America Corp.

Democrats have heralded the bureau, which opened its doors in July, as a way to protect consumers from abusive lending practices like the type of home loans that were made in the years leading into the 2007-2009 financial crisis.

Republicans, who demanded structural changes to the agency before they would help confirm a permanent director, have charged the agency is a virtually unchecked government body that will hurt lending and put small banks out of business.

Cordray said the agency has already taken over some enforcement investigations from other agencies and has started some of its own.

"Some may be resolved through cooperative efforts to correct problems," he said. "Others may require enforcement actions to stop illegal behavior."

Under the Dodd-Frank law, without a director in place the CFPB could supervise banks but it could not regulate the "shadow banking" industry such as payday lenders, mortgage servicers and private student lenders.

Cordray said the bureau would begin taking on these responsibilities as of Thursday now that he is sitting in the director's chair.

"We must establish clear standards of conduct so that all financial providers play by the rules," Cordray said.

(Reporting By Dave Clarke, editing by Dave Zimmerman)