Happy Birthday to the Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB), which was created when Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, recently celebrated its one-year anniversary. The CFPB, which officially opened on July 21, 2011, has the sole mission of ensuring that markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products. To achieve this mission, the CFPB has the authority to write and enforce consumer protection rules for banks and non-bank financial firms such as payday lenders, debt collectors, and consumer reporting agencies.
The CFPB had a slow start. The confirmation of the appointment of its Director, Richard Cordray, was held hostage by 44 Republican senators, who refused to confirm anyone unless the agency’s powers were weakened. In fact, although the agency officially opened its doors July 21, 2011, until Cordray was confirmed it was unable to fully protect consumers since, by statute, it could not enforce laws against “non-bank financial intuitions such as payday lenders” and other members of the predatory fringe financial markets until a director was confirmed. President Obama finally appointed Cordray in a recess appointment in January of 2012. Since then, the CFPB, despite continued attempts by some legislators to diffuse its power, has been actively looking out for American consumers, something that previous banking regulators had clearly failed to do
Among the CFPB’s many accomplishments, the following ten are noteworthy examples of its efforts to support consumers:
1. Financial Product Complaint System: The CFPB established a system for complaints about mortgages, student loans, bank accounts, car loans, and credit cards that is already getting results. The credit card complaint system is the first to be added to a new publicly available complaint database so consumers can not only have their complaints investigated, but can also compare firms based on complaints. Soon, this searchable database will add mortgage, overdraft, debit card, payday loan, and other consumer complaints.
2. Remittance Rules: Each year immigrants send, or remit, a portion of their income to family members in their home countries. Yet, the regulations, if any, governing remittance providers were lax. The CFPB recently issued new regulations regarding remittances, making it safer for consumers sending money to their families in other countries. The rules require companies to disclose the exchange rate, fees and the total amount being delivered. Other protections enable consumers to cancel a payment within 30 minutes, require companies to investigate consumer reports of problems with transfers, and mandate that companies are responsible for mistakes made by employees.
3. Credit Bureaus and Debt Collectors: The CFPB has the authority—the first time any agency has been given such authority—to investigate and examine the largest credit bureaus. Credit bureaus—and the credit reports they generate and the credit scores derived from such reports—help determine whether and how much a consumer will pay to get credit, insurance, a bank account, a place to live and, increasingly, whether they can even get a job. Yet, studies have shown as many as 25% of credit reports contain errors serious enough to prevent a consumer from obtaining a loan, home, or a job. Using this new authority, the CFPB can ensure that there is accurate credit reporting.
Similarly, the CFPB is completing a rule to allow it to fully regulate the largest debt collectors, whose unfair practices usually lead the “Top Ten” complaint lists at both the Federal Trade Commission and state attorneys general offices. About 30 million Americans have debt under collection, and the average amount under collection is $1,400. Under the proposed rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. Based on available data, the CFPB estimates that the proposed rule would cover approximately 175 debt collection firms—or 4 percent of debt collection firms—and that these firms account for 63 percent of annual receipts from the debt collection market.
4. Student Loans: The CFPB has helped students with its “Know Before You Owe” loan tool, which helps students understand their options and provides answers on how to repay student loans. The CFPB, in conjunction with the Department of Education, just released a report examining the private student loan industry. According to the report, private student loan debt has become a tremendous burden on American families, and there is more than $8.1 billion in defaulted private loans and even more loans that are delinquent.
5. Veterans: The CFPB’s Office of Service Member Affairs, along with states’ attorneys general and the Department of Defense, have also created the Repeat Offenders Against Military Database (ROAM) to track companies and individuals who repeatedly target the military community with financial scams. They have also stepped up mortgage and servicing protections for service members who are facing problems with their loans because they are required to move for military duty.
6. Mortgage Reforms: The CFPB is also preparing important mortgage servicing reforms so that companies’ responsibilities to borrowers are clear. These reforms will require firms to respond to mortgage modification requests in a more timely fashion. The forthcoming CFPB ability to pay rule (Qualified Mortgage) and other mortgage reforms will ensure that lenders cannot market unaffordable, unsustainable, unfair mortgages.
7. Payday and Other Lenders: For the first time in history, a federal agency—the CFPB—has full supervisory authority over high-cost non-bank payday lenders. The CFPB has already issued an examination manual and collected public comments on payday loan issues. For bank payday loans (often called Direct Deposit Loans), the CFPB also has authority to supervise and examine the largest banks that offer these products for compliance with federal credit protections.
8. Enforcement Actions and Penalties: On July 18th, the CFPB announced its first enforcement action, requiring Capital One to pay $140 million to two million of its customers and pay a $25 million penalty for using deceptive marketing strategies, including misleading customers to purchase “add-ons” such as credit monitoring and payment protection when they called to activate a credit card.
9. Prepaid Cards: Despite their popularity, the prepaid card market is unregulated at the federal level and leaves many consumers vulnerable. Prepaid cards often have high fees and, depending on how they are structured, may not have FDIC insurance, which protects deposits up to $250,000. Recently the CFPB requested comments on general purpose reloadable prepaid cards (GPR). In particular, the CFPB asked for comments about the appropriate scope of regulatory coverage, product fee disclosures, product features, whether a savings component should be required, and other GPR-specific consumer protections.
10. Overdrafts: Consumer groups have urged CFPB to ban overdraft fees for debit card purchases and ATM withdrawals, urged use of reasonable and proportional penalty fees, and urged full coverage under the Truth in Lending Act. The CFPB is completing an investigation into such unfair overdraft practices.
In sum, the CFPB has achieved a lot during its first year, but much more remains to be done. Let’s hope year two is even better than year one.
