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Consumer-finance watchdog agency launches

But it’s missing key powers it was supposed to have

WASHINGTON — The consumer-protection agency that was created in the wake of the financial crisis launched Thursday, lacking key powers that Congress had intended to give it.

The Consumer Financial Protection Bureau began last week to enforce dozens of rules that Congress lumped together as part of last year’s overhaul of financial regulations. It will help ensure that credit card holders have a clear understanding of the plastic in their wallets, borrowers are protected from unfair lending and military families have a dedicated financial watchdog.

Yet without a confirmed director, the agency can’t write or enforce new rules for nonbank financial companies, which made about half of the riskiest subprime loans before the crisis. The agency was created as the first federal regulator for many of these companies. Lawmakers wanted to prevent them from sidestepping rules that already applied to banks.

For payday lenders, prepaid card companies and other nonbanks, the new rules may be a little like the 1930s and the advent of the Securities and Exchange Commission, says Eugene Ludwig, who was Comptroller of the Currency, the top regulator for national banks, during the Clinton administration.

The lack of a confirmed director means those companies have less to worry about in the short term. President Barack Obama’s choice for the job is former Ohio Attorney General Richard Cordray.

Republicans say they will block him or any other nominee until the power of the agency and its director are scaled back. They have introduced legislation that would replace the agency’s director with a five-person commission and give Congress more control over its budget. The Democratic-controlled Senate is unlikely to take up the measures, and Obama said Wednesday that he would veto it.

Supporters of the agency say it will be more effective than its predecessors because it has a single focus: making sure consumers are treated fairly by banks, lenders and other financial companies. They say Americans and the companies will be stronger financially as a result.

Here’s how the new agency will affect consumer financial products and services:

Improved disclosure

Ÿ Mortgage costs: The true cost of a mortgage will become easier to understand. That’s because there will be less paperwork and legalese for applicants to wade through. .

Ÿ Credit cards: The agency has indicated that improving credit card disclosures is a top priority. Agency officials are working on a tool that would enable consumers to make apples-to-apples comparisons when shopping for cards.

Ÿ Credit scores: The agency will be responsible for enforcing rules that provide more information to consumers who apply for loans. Credit card or loan applicants who are rejected will automatically receive a copy of the credit score used as a basis for that decision. The notice will include detailed information about how the score was calculated and major factors that hurt the score.

Consumer feedback

Ÿ Complaints: For the first time, there will be a single hotline for consumers to make complaints about any financial product or service.

The new tip line will be rolled out in phases. At first, it will accept complaints about credit cards. Other products will be added in the coming months.

Product regulation

Ÿ Mortgages: The agency will enforce a new ban on mortgage brokers receiving kickbacks in exchange for giving borrowers higher-cost loans.

However, applicants with weak credit might have a harder time getting a loan. Under a separate rule that the agency will enforce, lenders must make sure that borrowers can afford to repay a loan. Lenders will scrutinize loan applicants’ income, assets and credit histories more carefully. Other rules in the financial overhaul might lead lenders to require higher down payments that poorer borrowers can’t afford.

Ÿ Credit cards: The agency oversees the card industry, and enforces year-old limits on fees and billing practices. With such limits in place, companies can’t make money on borrowers who are less likely to repay their debts. Since the rules took effect, consumers with weak credit are receiving fewer card offers, despite an increase in the overall volume of mail from credit card companies.