Now that it has a director, the Consumer Financial Protection Bureau can begin writing and enforcing rules for a wide range of financial service providers that have been largely unregulated at the federal level.
The bureau, created by the Dodd-Frank Act, has had authority to supervise consumer products offered by banks since it started in July, but it wasn't able to supervise nonbank entities such as payday lenders, credit bureaus and debt collectors until it had a permanent head.
I asked consumer advocates what they would put at the top of Richard Cordray's to-do-list, assuming he survives a potential challenge to his recess appointment by President Obama on Wednesday.
One of their top targets: payday lenders and other providers of high-interest, short-term loans.
In California, a consumer can borrow up to $300 from a payday lender and the lender can charge up to 15 percent of the loan amount, for a maximum fee of $45. For a two-week loan, that's equivalent to an interest rate of almost 460 percent a year, says Joe Ridout, a spokesman for Consumer Action.
Payday lenders, which range from mom-and-pop outlets to chains, "purport to offer affordable credit for people who have a short-term need or sudden emergency," he says. "But this is not affordable by any stretch of the imagination and it puts them on a debt treadmill."
Ridout says he hopes the bureau will make payday loans a priority because "it's something that hurts the poor." But "I think they will pick a middle-class issue like credit cards" to tackle first.
Shares in publicly held payday lenders tumbled Wednesday on concerns they could be in Cordray's crosshairs. Advance America, Cash Advance Centers fell 9.6 percent and World Acceptance Corp. dropped 6.6 percent. Cash America, EZCorp, First Cash Financial Services and DFC Global had losses in the range of 3 to 4.5 percent.
Travis Plunkett, the Consumer Federation of America's legislative director, hopes the consumer protection bureau will take a look not just at payday lenders but also at mainstream banks that have begun offering high-cost, small-dollar, short-term loans.
These are typically called direct deposit or account advances. The bank advances money to customers and gets repaid out of their next paycheck or Social Security direct deposit. The charge is typically $7.50 to $10 for every $100 borrowed. "Bank payday loans are slightly cheaper than traditional payday loans but can have steep late fees that payday loans do not," according to a report by the National Consumer Law Center.
Banks that have jumped on this bandwagon include Wells Fargo, Fifth Third, Regions Bank and U.S. Bank, according to the report.
Plunkett says the bureau cannot limit interest rates on these loans but "they do have the authority to look at other aspects, such as disclosures and the type of security taken."
Plunkett says he hopes the bureau "can stop these practices before they become embedded in the marketplace."
He also wants Cordray to put a high priority on stopping predatory practices aimed at military service members, mortgage foreclosure and servicing abuses, and unfair and high-cost overdraft loans.
Delicia Reynolds Hand, legislative director of the National Association of Consumer Advocates, says she hopes Cordray will "make the mortgage market safe again" by ensuring that people get into loans they can repay and preventing lenders from steering them into more expensive loans.
She also hopes the bureau will stop abusive debt-collection practices and take a look at "new methods debt collectors are using to harass consumers through social media and text messages."
Her group, whose members include consumer advocates and attorneys, also wants the bureau to exercise its authority under Dodd-Frank to restrict or ban, after a study, mandatory pre-dispute arbitration clauses in contracts between financial service companies and consumers.
The bureau says Cordray will "lay out the vision of the agency and his immediate priorities as director" in a speech this morning.