The CFPB: The New Regulator on the Block
The creation of the Consumer Financial Protection Bureau (CFPB) in the Dodd-Frank Act was a hotly contested issue. In the end, Democrats were able to push through the creation of this new agency. Even with some of the limitations designed to curtail the CFPB’s authorities, the CFPB is fast becoming a new and important player in the consumer finances market.
The CFPB is a powerful regulatory agency with broad powers to ensure compliance with consumer protection laws for banks with assets exceeding $10 billion, limited powers to monitor smaller banks and depository institutions, as well as supervisory authority over credit unions, residential mortgage companies (including originators, brokers and servicers, and providers of loan modification or foreclosure relief services), payday lenders and private education lenders. The CFPB also has the authority to supervise nonbank “larger participants,” including credit reporting companies and certain other consumer reporting companies.
The CFPB consolidates consumer financial protection responsibilities in one agency which previously was the responsibility of seven separate federal agencies. The CFPB has broad rulemaking and enforcement responsibilities. In the enforcement area, the CFPB has authority to impose appropriate legal or equitable remedies, including temporary and permanent cease-and-desist orders, rescission, refunds, disgorgements, damages and civil money penalties. In addition, the CFPB has rulemaking authority “as may be necessary or appropriate to enable the Bureau to administer . . .enforce and otherwise implement the provisions of Federal consumer financial law.”
The CFPB’s budget is statutorily fixed by a ratio formula to the Federal Reserve’s operating expenses. The CFPB is headed by a single Director, appointed by the President with the consent of the Senate to a five-year term and is removable only for cause by the President.
From its inception, the CFPB has focused on two significant industries – mortgage finance and credit cards. Next on the CFPB’s list will be the auto finance industry. All of this is understandable – consumers care most about home and auto loans and their credit cards. The CFPB is poised to make its mark in these areas, as well as others.
For compliance officers, the CFPB is a sea-change and a set of new risks. Companies need to focus on consumer interactions, complaints and training to make sure that such practices do not violate consumer financial protection laws. Financial service companies subject to the CFPB’s regulation should evaluate carefully their marketing and sales practices for consumer financial products to assess their practices for deceptive practices.
Consumer complaints have to be monitored regularly to determine the level of compliance. Companies need to design their compliance programs to prevent and respond to consumer complaints. The CFPB is encouraging consumers to bring their complaints to the agency for investigation. Aggressive plaintiffs’ attorneys are ready and willing to file class actions against deep-pocketed companies seeking big pay-offs.
The risks are real – government enforcement and private litigation – and companies need to prepare and devote even more resources and efforts to compliance.