Consumer Financial Protection Bureau - Consumer Finance Protection Bureau

The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States.

The CFPB's creation was authorized by the Doddâ€"Frank Wall Street Reform and Consumer Protection Act, whose passage in 2010 was a legislative response to the financial crisis of 2007â€"08 and the subsequent Great Recession.

The CFPB was initially established as an independent agency but it effectively became an executive agency after a federal appeals court found that the President of the United States' power to remove the CFPB Director had been unconstitutionally limited.

Role

According to Director Richard Cordray, the Bureau's priorities are mortgages, credit cards and student loans. It was designed to consolidate employees and responsibilities from a number of other federal regulatory bodies, including the Federal Reserve, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the National Credit Union Administration and even the Department of Housing and Urban Development. The bureau is an independent unit located inside and funded by the United States Federal Reserve, with interim affiliation with the U.S. Treasury Department. It writes and enforces rules for financial institutions, examines both bank and non-bank financial institutions, monitors and reports on markets, as well as collects and tracks consumer complaints. Furthermore, as required under Doddâ€"Frank and outlined in the 2013 CFPBâ€"State Supervisory Coordination Framework, the CFPB works closely with state regulators in coordinating supervision and enforcement activit ies.

The CFPB opened its website in early February 2011 to accept suggestions from consumers via YouTube, Twitter, and its own website interface. According to the United States Treasury Department, the bureau is tasked with the responsibility to "promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services". According to its web site, the CFPB's "central mission...is to make markets for consumer financial products and services work for Americansâ€"whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products".

History

In July 2010, Congress passed the Doddâ€"Frank Wall Street Reform and Consumer Protection Act, during the 111th United States Congress in response to the Late-2000s recession and financial crisis. The agency was originally proposed in 2007 by Harvard Law School professor Elizabeth Warren. The proposed CFPB was actively supported by Americans for Financial Reform, a newly created umbrella organization of some 250 consumer, labor, civil rights and other activist organizations. On September 17, 2010, Obama announced the appointment of Warren as Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau to set up the new agency. The CFPB formally began operation on July 21, 2011, shortly after Obama announced that Warren would be passed over as Director in favor of Richard Cordray, who prior to the nomination had been hired as chief of enforcement for the agency.

Dispute over director

Elizabeth Warren, who proposed and established the CFPB, was removed from consideration for nomination as the bureau's first formal director after Obama administration officials became convinced Warren "could not overcome strong Republican opposition". On July 17, President Obama nominated former Ohio Attorney General and Ohio State Treasurer Richard Cordray to be the CFPB first formal director. However, his nomination was immediately in jeopardy due to 44 Senate Republicans vowing to derail any nominee in order to encourage a decentralized structure to the organization. Senate Republicans had also shown a pattern of refusing to consider regulatory agency nominees, purportedly as a method of budget cutting. Due to the way the legislation creating the bureau was written, until the first Director was in place, the agency was not able to write new rules or supervise financial institutions other than banks.

On July 21, Senator Richard Shelby wrote an opâ€'ed for the Wall Street Journal affirming continued opposition to a centralized structure, noting that both the Securities Exchange Commission and Federal Deposit Insurance Corporation had executive boards and that the CFPB should be no different. He noted lessons learned from experiences with Fannie Mae and Freddie Mac as support for his argument. Politico interpreted Shelby's statements as saying that Cordray's nomination was "dead on arrival". Republican threats of a filibuster in the Senate to block the nomination in December 2011 led to Senate inaction.

On January 4, 2012, Barack Obama issued a recess appointment to install Cordray as director through the end of 2013; this was a highly controversial move as the Senate was technically in pro-forma session, and the possibility existed that the appointment could be challenged in court.

The constitutionality of Cordray's recess appointment came into question due to a January 2013 ruling by the United States Court of Appeals for the District of Columbia Circuit that President Obama's appointment of three members to the NLRB (at the same time as Cordray) violated the Constitution.

On July 16, 2013, the Senate confirmed Richard Cordray as director in a 66â€"34 vote.

Proposed amendments

On July 11, 2013, the CFPB Rural Designation Petition and Correction Act (H.R. 2672; 113th Congress) was introduced into the House of Representatives. The bill would amend the Doddâ€"Frank Wall Street Reform and Consumer Protection Act to direct the CFPB to establish an application process that would allow a person to get their county designated as "rural" for purposes of a federal consumer financial law. One practical effect of having a county designated "rural" is that people can qualify for some types of mortgages by getting them exempted from the CFPB's qualified mortgage rule.

On September 26, 2013, the Consumer Financial Protection Safety and Soundness Improvement Act of 2013 (H.R. 3193; 113th Congress) was introduced into the United States House of Representatives. If adopted, the bill would have modified the CFPB by transforming it into a five-person commission and removing it from the Federal Reserve System. The CFPB would have been renamed the "Financial Product Safety Commission". The bill was also intended to make it easier to override the CFPB decisions. It passed in the House of Representatives on February 27, 2014 and was received by the Senate on March 4. It was never considered in the Democratic-controlled Senate.

Regulatory activities

Credit cards

Mortgages

Regulatory implementation regarding mortgages is covered on the bureau website. Topics provided for consumers include, 2013 mortgage rule implementation, resources to help people comply, quick reference charts, supervision and examination materials, and a link for feedback. It also provides additional information that covers rural or under-served counties, HUD-approved housing counselors, and Appendix Q.

Appendix Q relates to the debt-to-income ratio that must be possessed for "qualified mortgages" and provides details about how to determine the factors for that calculation. The standard is set at no more than 43 percent.

Retirement and insurance investments

The CFPB is weighing whether it should take on a role in helping Americans manage retirement savings and regulate savings plans, particularly focusing on investment scams that target the retired and elderly. "That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have”, bureau director Richard Cordray said in a January 2013 interview. Some conservatives have been critical of this potential role, with William Tucker of the American Media Institute asserting that the agency intends to "control" retirement savings and force people to buy federal debt. The AARP has encouraged the agency to take an active role, arguing that the bureau will help protect elderly Americans from affinity fraud that often targets senior citizens, ensuring that their investments are less likely to be stolen through securities fraud or malpractice.

The main regulator of retirement and benefit plans established by employers and private industry is the Department of Labor, which enforces the main laws (ERISA, COBRA, and HIPAA), retirement plans (including 401(k), SIMPLE, 403(b), and traditional defined-benefit pensions) as well as many aspects of employer group-health plans. The Affordable Care Act, establishing marketplaces selling health plans directly to consumers, adopted the ERISA-style regulatory model, requiring all plans to have standardized documents such as a "summary plan document" (SPD), but the marketplace was regulated by the individual insurance commissioners of every state, with some states having multiple regulators (California maintains both a Department of Insurance and a Department of Managed Care). IRAs, also directed to consumers, are regulated by type of custodian (the FDIC regulates bank custodians, the IRS regulates non-bank custodians). Annuities, life insurance, and disability insurance purchased dir ectly by consumers, are regulated by individual state insurance commissioners. Marketing to consumers is generally regulated by the FCC and various state laws.

Because state commissioners are the main regulators, the CFPB is unlikely to assume a leadership role in retirement investment regulation without further legislation and possibly a US constitutional amendment transferring insurance lawmaking power to the federal government. In 2011, the National Association of Insurance Commissioners identified "the single most significant challenge for state insurance regulators is to be vigilant in the protection of consumers, especially in light of the changes taking place in the financial services marketplace", and the CFPB may help fill this void. Many have argued the state-based system of insurance regulation (including insurance-like products such as annuities) is highly economically inefficient, results in uneven and non-portable insurance plans, artificially shrinks risk pools (especially in smaller states) resulting in higher premiums, limits mobility of brokers who have to re-certify in new states, complicates the needs of multi-state b usiness, and should be replaced with a national insurance regulator or national insurance charter option as has taken place with the regulation of securities and banking.

Public outreach

The CFPB has created a number of personal finance tools for consumers, including Ask CFPB, which compiles plain-language answers to personal finance questions, and Paying for College, which estimates the cost of attending specific universities based on the financial aid offers a student has received.

The CFPB has also attempted to help consumers understand virtual currencies such as Bitcoin.

List of directors

Parties

  Democratic   Republican

Status

Legal challenges

Two lawsuits were filed in the early years of the CFPB; they were both dismissed by federal courts, but one was appealed and is still ongoing. The first one, filed in June 21, 2012, by a Texas bank along with the Competitive Enterprise Institute, challenged the constitutionality of provisions of the CFPB. One year later, in August 2013, a federal judge dismissed the lawsuit because the plaintiffs had failed to show that they had suffered harm. In July 2015, the Court of Appeals for the District of Columbia Circuit affirmed in part and reversed in part, holding that the bank, but not the states that later joined the lawsuit, had standing to challenge the law, and returned the case to Huvelle for further proceedings.

A lawsuit filed July 22, 2013, by Morgan Drexen Integrated Systems, a provider of outsourced administrative support services to attorneys, and Connecticut attorney Kimberly A. Pisinski, challenged the constitutionality of the CFPB. The complaint, filed in the U.S. District Court for the District of Columbia, alleged that the "CFPB's structure insulates it from political accountability and internal checks and balances in violation of the United States Constitution. Unbridled from constitutionally-required accountability, CFPB has engaged in ultra vires and abusive practices, including attempts to regulate the practice of law (a function reserved for state bars), attempts to collect attorney-client protected material, and overreaching demands for, and mining of, personal financial information of American citizens, which has prompted a Government Accountability Office ("GAO") investigation, commenced on July 12, 2013." That October, this case was dismissed by a D.C. Federal Court. On August 22, 2013, one month after Morgan Drexen's lawsuit, the CFPB filed its own lawsuit against Morgan Drexen in the United States District Court for the Central District of California alleging that Morgan Drexen charged advance fees for debt relief services in violation of the Telemarketing Sales Rule and engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA). The CFPB won this lawsuit and Morgan Drexen was ordered to pay $132,882,488 in restitution and a $40 million civil penalty.

In October 2016, the United States Court of Appeals for the District of Columbia Circuit ruled that it was unconstitutional for the CFPB Director to be removable by the President of the United States only for cause, such as “inefficiency, neglect of duty or malfeasance.” Circuit Judge Brett Kavanaugh, joined by Senior Circuit Judge A. Raymond Randolph, wrote that the law was “a threat to individual liberty” and instead found that the President could remove the CFPB Director at will. The ruling essentially makes the CFPB part of the United States federal executive departments. Circuit Judge Karen L. Henderson agreed that the CFPB Director had been wrong in adopting a new interpretation of the Real Estate Settlement Procedures Act, finding the statute of limitations did not apply to the CFPB, and fining the petitioning mortgage company PHH Corporation $109 million, but she dissented from giving the President a new power to remove the Director, citing constitutional avoidance .

Controversy

A 2013 press release from the House Services Committee (HSC) criticized the CFPB for what was described as a "radical structure" that "is controlled by a single individual who cannot be fired for poor performance and who exercises sole control over the agency, its hiring and its budget." Moreover, the HSC alleged a lack of financial transparency, lack of accountability to Congress or the President, and expressed particular concern about excessive travel costs and a $55 million renovation of CFPB headquarters that was more costly than "the entire annual construction and acquisition budget for GSA for the totality of federal buildings".

In 2014, some employees and former employees of the CFPB testified before Congress about an alleged culture of racism and sexism at the agency. Former employees testified they were retaliated against for bringing problems to the attention of superiors.

The CFPB acknowledged in private documents that it knew the agency was overestimating the number of minority applicants, but continued using the flawed methodology anyway to levy penalties against financial companies.

The CFPB has been heavily criticized for the methodology it uses to identify instances of racial discrimination among auto lenders. Because of legal constraints, the agency used a system to "guess" the race of auto loan applicants based on their last name and zip code. Based on that information, the agency charged several lenders were discriminating against minority applicants and levied large fines and settlements against those companies. Ally Financial paid $98 million in fines and settlement fees in 2013. As the agency's methodology means it can only guess who may be victims of discrimination entitled to settlement funds, as of late 2015 the CFPB had yet to compensate any individuals who were victims of Ally's allegedly discriminatory practices.