The CFPB's First Year and Future Challenges: A Conversation with Raj Date

WASHINGTON — Raj Date has had a busy year.

After joining the Consumer Financial Protection Bureau near the end of 2010, Date spent months helping Elizabeth Warren prepare the new agency to open on July 21.

But in August he was tapped to takeover Warren's role, temporarily serving as CFPB's de-facto leader in addition to being the agency's associate director for research, markets and regulations.

In a recent sit-down interview with American Banker, Date said the agency is further along than he initially expected and has made great strides reaching out to the industry. But he lamented that the CFPB does not yet have power to regulate nonbank lenders because the Senate has not confirmed a permanent director. He also acknowledged that, especially in Washington, some people will always see the new agency as a boogeyman, regardless of its actions. Following is an edited transcript of his remarks:

Q: What would you say have been the bureau's most significant accomplishments of 2011?

Date: I think we did a few things right at the outset in terms of figuring out what would be the scalable pieces of the infrastructure that we would need to assemble. We were able to really recruit an astonishing team, almost from the get-go. And then there are a number of things that really had to be able to go live on day one.

So for example, on July 20 we had no supervisory authority over banks; the next day we had supervisory authority over the consumer protection aspects of consumer finance over the largest banks in the country.

So all of that felt, I think objectively speaking, versus what my expectations were, we were ahead of where we would be.

Obviously without a director, we are behind where I would like us to be in terms of our non-depository supervision. During the course of the credit bubble, many of the most problematic mortgages were originated not by banks, and not for banks and credit union and thrift balance sheets, but originated by non-banks on the one hand, and executed in the capital markets either by the GSE's or by the street on the other.

But already memories of the importance of non-depositories in consumer finance are starting to fade. But they haven't faded for us, and in my mind it's a shame that we're not executing non-depository supervision today.

How much progress has the industry made to address some of these consumer protection issues on their own?

It's hard to be able to pull apart the threads of what is forward-looking, franchise-enhancing, customer friendly practices adopted, versus what has been done because the secondary markets absolutely will not accept anything else.

That said, if you take a business like credit cards, I think you'll find that there are actually practices that look a lot better. The card business is more transparent, and I would argue more resilient and just a better business today, than it was before the CARD Act …

But since then there are also some voluntary things that card issuers have done that I think on the margins have made things better. If you look at credit card agreements from some issuers, for example, things are actually somewhat simpler than they used to be, not because the CARD Act required it, but because it's kind of an active thing. And there's still a ways to go, but there certainly has been progress I think.

We hope to build on that progress with our simplified credit card agreement prototype. It's short and written in plain language, and we think banks, credit unions, and other credit card issuers are going to like it.

How much progress has the bureau made in tamping down some of the fear of the bureau within the banking industry?

Especially at the outset, we spent a lot of time making sure that the public and that the industry — and I mean that in the broadest possible sense, non-depositories, depositories, investors — all understood what we were doing, how we were doing it and why. And I think that actually had a very good benefit.

Even our most vocal critics I think have to acknowledge that we are pretty easy to find.

Before the transfer date there was this slightly theoretical feel to things, because we didn't actually have, for example, supervisory authority. Now we do. There are 100-plus firms — depositories plus affiliates — that we have supervisory authority over today. So we are in frequent dialogue with some subset of those institutions at any given time because it's part of our job. If anything it's more intense and more frequent by virtue of the fact that we have actual authority post-transfer date.

I will say, and this is mostly within the Beltway … I do think there are people who simply will not be persuaded.

But we can just do things. You don't have to listen to what I say at all, just look at what we do over time. And I'm very proud of that to date, and I have every expectation that it continues to be quite practical and quite sensible going forward.

And yet I can guarantee to you that there will be people who continue to be quite anxious. There are some people you can't convince.

What has been the tenor of your initial meetings with the big banks that you're now supervising?

We've built a team that knows what it's doing. We have people who really understand the credit card business, we have people who really understand the mortgage business and the capital markets, etc. And that's highly visible, and it's very hard to fake. It creates, I think, a good foundation.

At the end of the day, it's not a popularity contest. You want to be sensible, practical, open regulators, and so it is a relationship that banks understand. Banks are regulated; it's not news to anybody.

I know you've said many times that the bureau will use a combination of rulemaking and enforcement to regulate, but how will you make that distinction and where do you draw the line?

We're building an institution that achieves its mission, and it does that through whatever means are appropriate in each case. That's hard to do, but it absolutely can be done, you just have to get the right people. You have to know what you're doing, you have to be patient, and you have to be sensible about things. There are times that people try to make this stuff out to be harder than it actually is.

How can regulators ensure that CFPB supervision and enforcement standards don't trickle down to banks with less than $10 billion in assets?

We don't have supervisory authority over banks with less than $10 billion in assets. What that means is that we have to be attentive to the fact that we have to replace through other means the feedback mechanism, the dialogue that we would otherwise have with small banks.

So if you're a big bank, we will have a reasonably good idea at any given point in time what's on your radar screen — what you're concerned about, what you're not concerned about. That's kind of part of the job. We won't organically have that with small banks, because we don't supervise them, which is why we've gone out of our way to have a very healthy, active outreach effort.

On the applicability of rules, the rules will apply to everybody, and in general community bankers and credit unions that I have spent time with — and there's a lot in the last year — aren't really looking for some special handout.

Just getting everybody to play by the same set of rules as a practical matter would be a big step in the right direction.

How significant is it that we have this new abusive standard attached to the existing UDAP standard, or "unfair and deceptive acts or practices"?

We have the ability to actually see fact patterns on the ground. So we'll make sort of grounded assessments over time.

To what extent will the CFPB consult with the other regulators when making your rules, especially now when there isn't a director and some in the industry continue to question your authority?

We will proceed with whatever rulemakings we either have to or should proceed with for which we have authority. However, the statute requires, and I think common sense would dictate, that you consult with the prudential regulators during the rulemaking process. There is a relatively unambiguous requirement to that end in Dodd-Frank, and we'll do that.

Obviously I think there is real benefit to having singular focus and singular accountability for things that are difficult.

So if you want it to be done well, you probably should make somebody singularly accountable for it. That said … it would be useful if no one were somehow surprised by anything, and if that which we do and that which the other agencies do is appropriately informed by the set of experiences and the insight that the other agencies have.

What will be the bureau's main priorities in 2012, and how are they changing?

When I got here last fall we had a pretty decent sense of what 2012 would look like.

So if you group everything into two big categories: we are continuing to build out what I think is and can be over time a great institution and we're continuing to try to deliver quite tangible results for the marketplace, and for consumers.

And for 2012 what that means, the biggest items in those two halves are continuing to build out the full breadth of our supervisory capability — getting the right people in place, the right mechanisms by which that very important function gets executed. And then in terms of tangible kind of policy results, clearly mortgages, because the statute and any sense of reality would dictate that there have to be reforms in the mortgage marketplace, and Dodd-Frank mandates that we execute against some subset of that.

But in addition we try to make sure that we're paying attention to the other facets of what is, after all assets and liabilities, a $20 trillion business. So we've talked in the past about trying to make strides in student lending and deposits and cards, and I expect in 2012 we'll do all of those things. But none of it gets done well without the right people in place, so we've been very lucky to have the right people.