The Basics of the CFPB
November 10, 2014
Let’s begin—honestly—by acknowledging that the very words, “the Consumer Financial Protection Bureau” tend to make our eyes glaze over, whether you’re a supporter or opponent of the CFPB’s cause or work for an institution that’s subject to the CFPB’s oversight. Because the CFPB—a newly minted but already powerful government agency, headquartered within a stone’s throw of the White House Complex (one can see the Eisenhower Executive Office Building from the front of CFPB headquarters), and already the subject of some controversies in its short history (we won’t get into whether the controversies were justified)—is just that, a government oversight/rulemaking/enforcement agency which, like any federal government bureau, conjures up images of a byzantine, hard-to-get-your-head-around, bureaucratic, government agency.
For starters and for context, let’s touch briefly on the Dodd-Frank Act, often simply referred to as “Dodd-Frank.” Discussion of Dodd-Frank will be limited to its relationship with CFPB--a comprehensive analysis of Dodd-Frank would be mind-numbing. So here’s the quick and the dirty on Dodd-Frank generally: Dodd-Frank was signed into federal law by President Obama in July 2010, in response to the Great Recession. It’s contained in Chapter 53 of Title 12 of the United States Code (Title 12 of the U.S. Code contains our federal legislation dealing with banks and banking). Dodd-Frank’s provisions are broken down into titles dealing with things such as:
- Setting up a council—called the Financial Stability Oversight Council--to identify risks to the financial stability of the U.S. and monitor the financial services marketplace;
- To provide the necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the U.S.;
- To provide some regulation of advisers of hedge funds (who were previously exempt);
- To introduce the “Volcker Rule” in order to limit banking entities’ interests in hedge funds or private equity funds;
- To put in place investor protections and attempt to provide some improvements to the regulation of securities, and;
- To beef up supervision of institutions that provide consumer financial products.
In short, the primary thrust of Dodd-Frank (at least when it was initially conceived) is to hopefully avoid another financial meltdown through research, supervision and regulation, and to provide additional protections in the consumer financial product marketplace (the idea being there’s a correlation between providing more oversight of financial institutions, providing more consumer protections, and avoiding another financial crisis like the Great Recession which was triggered in large part by the subprime crisis).
To deal with the consumer protection side of Dodd-Frank, Title X of Dodd-Frank, also known as the “Consumer Financial Protection Act of 2010,” established the CFPB. The physical manifestation of the CFPB is its headquarters located at 1700 G Street, NW Washington, D.C. in a federally owned building that used to be home to the Office of Thrift Supervision. As noted above, the CFPB headquarters is a stone’s throw from the Executive Office Building which, in the view of many, is indicative of the prominent role the CFPB is intended to play in the financial marketplace going forward. The CFPB’s director is Richard Corday and, pursuant to its end of year report from December 30, 2013, the CFPB had more than 1,300 employees. The CFPB is funded by transfers made by the Board of Governors from the Federal Reserve System. Per the December 30, 2013 year end report, “[a]s of September 30, 2013, the CFPB had requested transfers from the Federal Reserve totaling $518.4 million to fund CFPB operations and activities for FY 2013…[and]…the CFPB spent approximately $539 million for fiscal year 2013 obligations and outlays to carry out the authorities of the Bureau under Federal consumer financial law. Approximately $192 million was spent on employee compensation and benefits for the 1,335 CFPB employees…”
OK, so we know where the CFPB is headquartered, how long it’s been around, and we have an idea how big it is in terms of personnel and budget. So what is the purpose of the CFPB? Per a 2012 White House Blog entry, the CFPB “was created to make sure that the financial products and services that Americans depend on every day —including credit cards, mortgages, and loans—work better for the people who use them…[the] CFPB is charged with overseeing the Federal financial laws that specifically protect consumers—people who keep their money in banks and credit unions, pay for goods and services with their credit cards, and rely on loans to buy homes or pay for college, among other services.” The CFPB’s own Web site states the following: “Congress established the CFPB to protect consumers by carrying out federal consumer financial laws. Among other things, we:
- Write rules, supervise companies, and enforce federal consumer financial protection laws
- Restrict unfair, deceptive, or abusive acts or practices
- Take consumer complaints
- Promote financial education
- Research consumer behavior
- Monitor financial markets for new risks to consumers
- Enforce laws that outlaw discrimination and other unfair treatment in consumer finance”
OK, so now we know the CFPB’s purpose, or intended purpose. Future posts will discuss current rules and regulations that are in effect, proposed rules, how the rules and regulations are enforced, and cases of interest. Very briefly, before concluding, I’ll add the following (for the lender/servicer audience): Yes, the CFPB has examiners—lenders/servicers already know this--armed with their “CFPB Supervision and Examination Manuals” who oversee companies that “provide consumer financial products and services…[and]…determine if companies are complying with consumer financial protection laws.” Yes, there are exempt lenders, referred to as “Small Servicers,” but being a lender that falls within the definition of a Small Servicer doesn’t mean that particular lender is exempt from the CFPB’s supervision and rules in general, rather, the lender is simply exempt from some of the CFPB rules (more on the “Small Servicer” exemption later). For now, hopefully you have a better “general idea” of what the CFPB is and does--going forward, we’ll focus more on oversight, rules and cases.