The Consumer Financial Protection Bureau

The current financial reform process has been subject to inevitable comparisons with the sweeping overhaul of the 1930s, which created the bulk of America’s financial bureaucracy as we know it today. With much of the Wall Street Reform and Consumer Protection Act, commonly called the Dodd-Frank bill, building on the framework established by the Roosevelt administration, the new law has suffered accusations of a poverty of ambition. However, in one area the act has succeeded in creating something unambiguously important and unique: The Consumer Financial Protection Bureau, an autonomous government agency dedicated to supervising the consumer financial markets.

Title X of the Dodd-Frank bill, the Consumer Protection Act, lays the foundation for this new agency. While the idea of a federal office specifically dedicated to consumer finance has been kicked around by policymakers for decades, experience with pernicious mortgage loans in the nineties and then through the housing bubble during the early years of the 21st century brought the idea back to the front of the public debate. Following the financial crisis, as Congress took up the task of reinforcing financial regulation, consumer advocates focused their efforts on making the agency a reality. After nearly a year of debate and negotiation, and despite objections from the industry, the CFPB has been established. This report will discuss exactly what Title X empowers the Bureau to do and what the Bureau’s initial staff can do to begin using those tools to their fullest potential.

Authorities

The CFPB’s objective is straightforward: To create access for all types of consumers to financial markets, products, and services that are fair, transparent, and competitive. That entails—

1)    Ensuring that consumers have timely and understandable information.
2)    Prohibiting unfair, deceptive, abusive, or discriminatory business practices.
3)    Identifying and addressing outdated or burdensome regulations.
4)    Promoting transparent, efficient, and competitive markets for consumer financial products.

The agency is empowered through a number of different authorities to pursue these objectives, including several aspects of the program that are broader than what we traditionally conceive of in a regulatory agency. Here is a description of the various responsibilities and powers identified by statute which will be the primary building blocks of the CFPB’s agenda:

Conducting Financial Education Programs

The CFPB will be able to develop and implement financial education programs that give consumers a better understanding of their own choices. There are a number of existing models for this part of the Bureau’s mission; the Treasury Department already runs several pilot programs providing financial education, and local consumer authorities from New York to San Francisco have seen success in providing the right information directly to consumers, especially those who did not obtain financial education from their schools or families. Financial education is a key part of the wealth-building—read, anti-poverty—mission of the CFPB.

Collecting, Investigating, and Responding to Complaints

The CFPB will administer a telephone hotline and web presence for collecting and addressing consumer complaints about financial products. Ideally, this will not only improve consumers' experience in the financial markets but also provide important data about business trends and practices. The CFPB is required to respond to consumer complaints with information about both the Bureau’s response to the complaint and actions of the offending financial institution to redress the consumers’ concern. All financial institutions that come under the CFPB’s bailiwick are required by law to respond to both consumers and the regulator in a timely fashion during this process.

Data Collection and Publication

The Research Office will be charged with identifying and collecting important data about consumer financial markets of interest to the public to inform decision making among businesses, consumers, and regulators. For instance, knowledge of how banks charged unfair or unnecessary service fees, such as those for overdrawn accounts, led to new rules about how banks inform their customers about overdraft protection programs and prohibitions on the kinds of fees banks can charge. Yet we know very little about similar service charges used by credit card companies to increase their revenue at the expense of consumers. With more information about those practices, businesses and consumers will be able to make smarter decisions and regulators will be able to respond with appropriate consumer protection measures similar to those on overdraft fees.

Toward this end, the CFPB is empowered to demand information from its supervisees, under oath if necessary, and other regulatory branches.

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