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.

With the debt ceiling debate raging in Washington, questions of whether, or when, the country’s largest credit rating agencies will downgrade the nation’s creditworthiness has become a central issue. Not so central, though, to attract more than a half-dozen congressman to a hearing where top executives from credit ratings agencies testified.

Only a handful of members were present on Wednesday at a House Financial Services oversight subcommittee hearing where Standard & Poor’s president, Deven Sharma, and Moody’s Investors Service’s global managing director, Michael Rowan, were called to discuss credit rating reforms under the year-old Wall Street reform law. That subject, however, was later abandoned by lawmakers who wanted to know the executives' views on the debt ceiling fight underway in Congress.

Republican Scott Garrett of New Jersey asked the two ratings executives questions about debt ceiling proposals that have been circulated by each political party, but perhaps predictably, neither would commit to specifics.

Sharma said that "some of the plans" to cut the U.S. deficit could bring the nation's debt “in the range of the threshold for AAA ratings,” but added that S&P does not comment on political decisions until they are finalized. And while the U.S. “debt burden does need to be addressed,” a drop from a AAA to AA rating doesn’t mean his analysts predict default, just that the risk is predicated to be higher, Sharma said.

Treasury Secretary Timothy Geithner has warned that if Congress doesn’t reach a deal soon, the U.S. Treasury will hit the debt ceiling next Tuesday and be unable to pay all its bills.

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.

The Consumer Financial Protection Bureau has opened for business, its mailbox piled high with wish-lists from consumer advocacy groups about what the new agency should tackle first.

While consumer groups cheer the arrival of the CFPB, the banking industry and other financial services providers such as payday lenders, debt collectors, consumer credit bureaus and credit card issuers are less enthusiastic and worry that any new regulations could be costly and burdensome. Many Republican lawmakers share those concerns and have threatened to block the Senate nomination of Richard Cordray to head the agency.

Until the CFPB has a confirmed director in place, the bureau is limited to enforcing existing consumer protection regulations and generally cannot propose new rules.

Here is a closer look at some of the most common requests from consumer groups to the CFPB:

Make credit card offers easier to compare

Searching for the best deals on a credit card is notoriously difficult. Details on rewards programs are hard to find, and comparing fees and APRs is challenging because the box containing this key information looks different on each credit card company’s marketing materials. JPMorgan Chase & Co., for example, calls this box “Pricing and Terms” and places it in the middle of the page, while Citigroup Inc. places its “Terms and Conditions” on the upper left of the page.

The CFPB could help consumers by requiring a standard, one-page credit card contract.  “The card issuers are marketing a product to consumers. Consumers shouldn’t have to hunt for information about interest rates and fees. Really, this is in the best interest of card issuers, too,” says credit card expert Beverly Blair Harzog on Credit.com.

End hidden fees on pre-paid debit cards

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.

Debt settlement companies play the middle man between consumers and their creditors.

Clients are often advised to stop paying their creditors and instead funnel their funds through the debt settlement companies, which will try to use withheld funds as leverage when negotiating with creditors. 

Debt settlement companies also promise to handle most telephone and mail contact with bill collectors. Some companies even give their clients a script to follow when creditors call.

Morgan Drexen, Inc., a California-based company, included such a script as an attachment to a contract to hire a West Virginia lawyer to help with clients' debt settlements. The telephone script, designed for sharing with clients, advises them that if creditors “ask you questions about us, don’t try and explain the program to them, have them contact us. If they ask you for any data on your personal situation, don’t give it to them, insist they talk to us.”

Following is a copy of the Morgan Drexen script, obtained by iWatch News. The document, and the rest of the contract are posted here.

YOU: Hi, may I help you?

CREDITOR: Yes. I need to speak to Mr. or Mrs. __________ concerning this overdue amount!!!