The Center for Public Integrity

As Washington regulators develop and finalize hundreds of regulations under the Dodd-Frank reform law, banks and other financial services companies are hiring more lobbyists to influence the process.

Citigroup, JPMorgan Chase & Co., TD Bank and Fifth Third Bank are among the banks that have added Washington staff in the past year.  For instance, Citigroup hired Candida Wolff, an ex-Bush administration legislative affairs liaison, while TD added Edward Silverman, a former Senate Banking Committee staff director, Roll Call reported.

And Depository Trust & Clearing Corp. – a company with a lot at stake in how derivatives regulations are written – hired lobbyist Dan Cohen, to open the company’s first Washington office, the newspaper said. Cohen, who once worked for former Republican Rep. Joseph McDade of Pennsylvania, says the new DTCC office will be expanding to add more staff.

"This will create more jobs than the jobs stimulus bill," said Richard Hunt, president of the Consumer Bankers Association, whose group has added lawyers and lobbyists and is in the market for more.

Date in charge of CFPB – Raj Date, a top deputy at the Consumer Financial Protection Bureau, will take over daily operations of the new agency when Elizabeth Warren departs at the end of July to return to Harvard Law School.

The Financial Stability Oversight Council (FSOC), comprised of U.S. regulators of financial services, warned Congress of the continued fragility of the U.S. financial system and called for increased protection in several key areas.

Those areas included the $2.7 trillion short-term funding market known as the “triparty repo” market, as well as money-market mutual funds, the council said in its first annual report. The repo market temporarily froze during the 2008 financial crisis and drained a key source of funding for investment companies and banks, the Wall Street Journal reports. FSOC recommended that the Securities and Exchange Commission increase stability in money-market funds by changing from a fixed to floating share price, and imposing capital standards to absorb losses.

FSOC also warned that the United States faces potential losses connected with the European debt crisis.  Any assumptions of market stability, the report said, should be met with "a heavy dose of skepticism."

Stressed hedge fund managers – Billionaire investor George Soro is returning $1 billion to outside investors so that he can avoid registering his giant investment fund with the Securities and Exchange Commission. Instead, he will now manage the fund – worth $25 billion - as a family business.

The move is "an unfortunate consequence" of the Dodd-Frank financial regulations, Soros wrote in an investor letter.  Under rules adopted since the Dodd-Frank reform law, a fund must register with the SEC unless it manages investments for a single family.

Big U.S. banks are among the harshest critics of the Consumer Financial Protection Bureau, but they stand to benefit from a CFPB crackdown on risky products, which would limit the banks' future credit and litigation costs, according to a major credit rating agency.

In a new report, Moody’s Investors Service called the CFPB a “medicine” which could reduce the number of risks that banks take, according to the New York Times’ Dealbook.  The CFPB will also help U.S. banks by extending regulation to their non-banking financial companies and thus “level[ing] the playing field.”

But Moody’s also acknowledged that the CFPB – which has the power to enforce consumer protection laws at 110 of the biggest U.S. banks –  may cut into profits by reducing banking fees and tightening mortgage servicing standards.

“Certain elements of the C.F.P.B. are credit negative for large U.S. banks, in particular those with substantial mortgage operations,” Moody’s said. “Such firms are likely to be confronted by new national standards and attendant compliance-related costs related to mortgage servicing.”

FDIC, Comptroller nominees – Thomas Curry, the White House choice to head the banking regulatory agency that oversees the nation’s biggest banks, on Tuesday endorsed “strong capital levels” for banks at his Senate confirmation hearing.

As Ohio Attorney General, Richard Cordray took on big banks, credit rating companies and mortgage servicers, but his biggest challenge may be yet to come:  Can he win enough Senate votes to be confirmed as director of the new Consumer Financial Protection Bureau?

As Ohio's top policemanl from 2008 to 2010, Cordray filed lawsuits against credit rating companies Moody's and Standard and Poor's for giving AAA ratings to junk debt, and sued big financial institutions such as Bank of America Corp. for alleged foreclosure fraud. He also targeted financial practices that led to massive losses in the state’s public pension and retirement funds.

Those credentials may not do much to help the would-be CFPB director in facing stiff opposition from congressional Republicans who seek to transform the bureau’s fundamental structure, and from businesses that fear he will overstep his regulatory bounds.

Richard Shelby , the top Republican on the Senate Banking Committee, called the nomination “dead on arrival,” and even Democrats have been less than warm in their reception.

Senior senators took to the op-ed pages to defend and attack the Dodd-Frank reform law, which was signed into law one year ago today.

Richard Shelby of Alabama – the top Republican on the Senate Banking Committee -- wrote in the Wall Street Journal that one of the key agencies created by the law, the Consumer Financial Protection Bureau, is running amok with unchecked powers. He criticized the law for creating the CFPB with a single director at the top, rather than a five-member commission, and also blasted what he described as a lack of congressional oversight of the CFPB.

“Unless Congress enacts reform, it is only a matter of time before this concentration of power is abused or misused to the detriment of American businesses and consumers,” Shelby wrote.

Over at The Hill, Democrat Tim Johnson, the chairman of the Senate Banking Committee, argued that critics of the Dodd-Frank law suffer a “strange amnesia” and seem to forget that the “worst financial crisis since the Great Depression […] didn’t just happen by itself.” 

Johnson, who represents South Dakota, wrote that “complex problems require complex solutions” and that the reform law was meticulously created in a “thorough, transparent, and yes, bipartisan, process."

State consumer laws preempted – The Office of the Comptroller of the Currency finalized a rule yesterday on when federal law can “preempt” or override state consumer protection laws for banking products and services.

The Consumer Financial Protection Bureau will analyze tens of thousands of consumer credit scores from major credit reporting agencies to get a clearer picture of why an individual’s credit score can vary widely.

In May, iWatch News reported how unregulated consumer credit bureaus use proprietary formulas to calculate credit scores that largely determine if a consumer can qualify for a mortgage, car loan or other major purchase, and how high the interest rate will be. Consumer advocates have complained that when a borrower and a lender each buy a credit score from the same company, they often receive different numbers.

The CFPB, in a report to Congress released today, reviewed the credit scoring industry in general and said it will take a more rigorous look at disparities in credit scores by analyzing 200,000 credit reports from each of the three biggest credit bureaus.

Equifax Inc., Experian Plc and TransUnion Corp. compile credit information about consumers and run the data through algorithms to produce credit scores. The numeric scores – often ranging from 300 to 850 – are used by mortgage lenders, auto dealers, insurance companies and others to determine credit rates and limits.

A multitude of algorithms exist to tailor the picture of the borrower to the kind of credit in question, so a consumer might receive an “educational score” that is different than a custom-weighted score provided to a credit card company, for example.

“The most substantial harm would likely result if, after purchasing a score, a consumer has a different impression of his or her creditworthiness than a lender would,” the report said.

The Dodd-Frank reform law marks its one-year anniversary Thursday amid a growing drumbeat by Republican lawmakers and banking groups to undo at least some of its stricter financial regulations.

The lobbying push has others questioning whether the tightened regulatory measures that helped stabilize Wall Street will still be in place when the next crisis hits.

The Republican-led House is entertaining two dozen bills which seek to dismantle various parts of the law that was passed last summer to prevent a repeat of the 2008 near-collapse of U.S. housing and financial markets, according to the New York Times. Business groups complain that new regulations stifle U.S. economic growth, while banks claim tougher rules gives their overseas competitors an advantage.

Lawmakers have taken more indirect shots at the law as well, with Senate Republicans vowing to stop the nomination of key regulators and to slash the budgets for regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and Consumer Financial Protection Bureau (CFPB).

President Barack Obama said he remains committed to financial reform.

“The financial crisis and the recession were not the result of normal economic cycles or just a run of bad luck,” Obama said Monday in introducing his nominee, Richard Cordray, to head the CFPB. “There were abuses and there was a lack of smart regulations.  So we’re not just going to shrug our shoulders and hope it doesn’t happen again.”

But critics and supporters of Dodd-Frank alike bemoan the missed and postponed deadlines for finalizing rules, which they say creates uncertainty in the marketplace. The CFTC, for example, is charged with overseeing the $600 trillion global derivatives market but has delayed some rules until December.

Just three days before the Consumer Financial Protection Bureau throws open its doors for business, President Barack Obama nominated former Ohio Attorney General Richard Cordray to head the new agency.

"We are going to stand up this bureau and ensure it is doing the right thing for middle class families all across the country," Obama said at a Rose Garden ceremony announcing his choice to direct the CFPB.

Cordray, 52, has been helping special presidential adviser Elizabeth Warren set up the bureau since he lost re-election as attorney general in November. Cordray, now head of enforcement at the CFPB, was elected Ohio state treasurer in 2007 and served two years in the Ohio legislature.

In choosing Cordray, Obama sidestepped Warren, who has spent the past year assembling the bureau amid stiff Republican opposition.  Senate Minority Leader Mitch McConnell reiterated today that 44 Republican senators will block any nominee until the CFPB director is replaced with a five-member commission, and other steps are taken to weaken its power.

“Republicans have voiced our serious concerns over the creation of the CFPB because it represents a government-driven solution to a problem government helped create,” McConnell said. “We have no doubt that, without proper oversight, the CFPB will only multiply the kind of countless burdensome regulations that are holding our economy back right now, and that it will have countless unintended consequences for individuals and small businesses that constrict credit, stifle growth, and destroy jobs.

The Financial Stability Oversight Council, made up of major Wall Street regulators throughout the federal government, has the power to veto any CFPB decisions.

The new Consumer Financial Protection Bureau, which opens for business next week, does not plan to ban specific financial products, presidential adviser Elizabeth Warren told Congress.

Banning fraudulent financial products and services "is a tool in the toolbox, and that's where it should stay," Warren testified at a Republican-led House Oversight and Government Reform hearing on Thursday, the Wall Street Journal, Politico and other media reported. “We have no present intention to ban a product, but we are still learning about what’s out there” she said.

Republicans on the panel, who questioned Warren at a contentious hearing in late May, grilled Warren about whether the CFPB may try to outlaw payday loans and try to regulate new car loans.

"The American people have a right to know how the bureau will advance and enforce its regulatory assignment," said Committee Chairman Darrell Issa, a California Republican. “Consumers deserve opportunities to choose between lending alternatives and other financial tools that establish credit and give buyers the chance for affordable enhancements to their standards of living.”

A C-span video of the three and one-half hour hearing is posted here.