With its first chief now in place, the new Consumer Financial Protection Bureau will start enforcing rules aimed at reining in abusive mortgage servicers, student lenders and payday-loan companies.
It will be months, though, before the agency can police other areas of consumer finance, such as debt collection and credit-reporting bureaus.
Over Republican opposition, President Barack Obama used a congressional recess appointment Wednesday to install Richard Cordray to lead the consumer finance watchdog. The bureau was created in July as part of the 2010 overhaul of the nation's financial regulations.
The idea behind the new agency was to prevent financial companies, such as mortgage servicers, from exploiting consumers. Such companies, facing scant federal oversight, committed some of the worst consumer abuses before the financial crisis.
In the past, only banks were subject to examination by federal financial regulators. And until now, with no permanent director, the bureau had authority to supervise only big banks.
Senate Republicans had vowed to block Cordray's nomination until the agency's structure was changed to allow closer congressional oversight. But Obama took advantage of the congressional break to install Cordray, a former Democratic attorney general of Ohio.
Cordray said he would immediately "begin working to expand our program to non-banks, which is an area we haven't been able to touch up until now."
That change will likely start within weeks. Agency officials who are supervising big banks have already been trained to examine non-bank financial firms.
Still, some areas of consumer finance will remain outside the bureau's reach. Aside from payday, mortgage and student loan companies, the consumer protection bureau can supervise only non-bank companies it defines as "larger participants" in their markets.
In June, the agency sought public comments on a proposal to supervise major debt collectors, credit reporting bureaus, check cashers, issuers of prepaid debt cards and debt-relief companies. The comment period has ended, and the agency is reviewing the responses. It's not clear how long the review will take.
Once the comments have been reviewed, the proposal must be revised, subjected to further public comment and then approved by the White House. This could take months or years. If the agency's proposal is approved, it will be able to send inspectors to credit bureaus and others that meet the "large participant" definition.
Here's a guide to the powers that the CFPB now holds over different categories of companies:
_ Non-bank mortgage lenders and servicers:
These companies have been subject to existing laws and rules, but the agency was unable to supervise them without a permanent director. With Cordray's appointment, the CFPB can have officials monitor mortgage lenders and servicers. That might discourage any from using "robo-signers" to foreclose on borrowers without doing the required paperwork. That practice became widespread over the past decade, and no federal agency was responsible for cracking down.
_ Payday lenders:
Companies that make short-term loans to borrowers with weak credit already are governed by federal laws such as the Truth in Lending Act. But there's been no federal oversight to make sure they comply. The CFPB can now send examiners to payday firms it suspects of illegal or abusive practices. The agency wants to make sure they disclose the full cost of a loan upfront so consumers can make an informed choice.
_ Private student lenders:
CFPB examiners have gained the authority to examine these companies. The federal government has been cracking down on for-profit education companies whose graduates can't find jobs and have little chance of repayment. The CFPB can now require these lenders to follow existing rules and write new ones intended to guarantee that they lend fairly.
_ Prepaid debit card companies, credit bureaus, money-transfer companies, check cashers, debt relief services:
These companies are subject to federal laws. But they've faced little oversight in the past. The CFPB proposed in June identifying major participants in these markets to make sure they're following the rules. It's unclear when that proposal might take effect.
_ Big banks:
Banks already are overseen by the bureau, so nothing much will change as a result of Cordray's appointment. Since its creation, the agency has been placing full-time examiners in the nation's biggest banks to enforce laws and rules. It can require them to file regular reports, monitor risks they might pose to consumers and write new rules.
Follow Daniel Wagner at www.twitter.com/wagnerreports.