Definition and Examples of the Consumer Financial Protection Bureau
The CFPB was formed in 2010 when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in the aftermath of the financial crisis of 2008. President Obama consolidated various consumer financial protection authorities that were scattered across seven agencies into a single enforcement entity with heightened authority and independence. This was done in hopes of protecting consumers from the predatory behavior that contributed to the financial crisis. Among other functions, the CFPB is responsible for ensuring compliance with the federal financial laws pertaining to banks, credit unions, credit cards, and home and college loans. Dood-Frank vested the CFPB with the power to regulate the activities of independent payday lenders, private mortgage lenders and servicers, debt collectors, credit reporting agencies, and private student loan companies—authority the federal government had never had before. The function of this authority is to police these entities for unfair, deceptive, and abusive practices harmful to consumers.
How the CFPB Works
The CFPB is divided into six divisions, which each carry out distinct functions:
Consumer Engagement and Education: Educates consumers on finances with a special emphasis on underserved communities, older Americans, military families, and studentsSupervision, Fair Lending, and Enforcement: Ensures and enforces compliance with federal consumer financial lawsResearch, Markets, and Regulations: Researches consumer financial markets and consumer behavior, which then informs policies and programsThe Office of General Counsel: Ensures the CFPB’s compliance with all applicable lawsExternal Affairs: Maintains open lines of communication with external stakeholders, such as banks, government agencies, legislators, and the mediaChief Operating Officer: Sustains the agency’s operational infrastructure
The CFPB is located within the Federal Reserve but is exempt from any budget or personnel decisions from the Federal Reserve Board. Instead, the agency is subject to the oversight of the Financial Stability Oversight Council (FSOC), which can overturn a CFPB rule with the consent of two-thirds of its members. The Federal Reserve’s chairman is a member of the FSOC.
CFPB Controversies
The CFPB has been the subject of its share of controversies. The bulk of the controversy stems from the bureau’s funding mechanism and its leadership.
How the CFPB Is Funded
The Federal Reserve transfers funds to the CFPB annually in the amount requested by the CFPB director, whereas most agencies are funded through Congressional appropriations. As such, the CFPB is not subject to the appropriations process nor the accompanying Congressional scrutiny. Some lawmakers have expressed concern over the fact that the bureau spends this money with no oversight from Congress, the president, or the Federal Reserve. Further, the bureau is not subject to Office of Management and Budget (OMB) guidelines, rules, and regulations and does not need to comply with OMB Controller alerts. This fiscal structure is a source of consternation to many legislators.
Director of the CFPB
The CFPB is headed by a director who is appointed for a five-year term. The director is appointed by the president and is subject to Senate confirmation. Sitting presidents are limited in their ability to remove the CFPB director. Lawmakers have expressed concern over what they see as a design flaw: The bureau is controlled by a single individual who cannot be fired for poor performance and exercises sole control over the agency, its hiring, and its budget.
What Resources Does the CFPB Offer Consumers?
The CFPB provides a number of resources available to all Americans. These include online resources like links to free credit reports and sites such as FINRA Broker Check, which allows investors to investigate the status of a brokerage firm. The CFPB website also contains links to educational material and guides about everything from the basics of investing to personal finance courses for children. Consumers can also submit a complaint directly on the CFPB website. The agency reviews all complaints to ascertain whether they warrant further action. The CFPB also publishes all complaint data while maintaining the anonymity of the complainer.
Alternatives to the Consumer Financial Protection Bureau
The CFPB is not the only entity that works to protect consumers. Other consumer finance focused federal agencies include the Federal Trade Commission (FTC). The FTC seeks to protect consumers by stopping unfair, anticompetitive, deceptive, or fraudulent practices in the marketplace through law enforcement, advocacy, and education. The U.S. Consumer Product Safety Commission ensures consumer product safety by issuing recalls and studying instances of death and injury. Numerous state governments operate consumer protection agencies, some of which are modeled after the CFPB. The New Jersey Division of Consumer Affairs and the California Department of Consumer Affairs are two such organizations. Consumers can also turn to nongovernmental consumer protection agencies. The most well known of these agencies is the Better Business Bureau, which publishes and investigates complaints against businesses and advocates on consumers’ behalf. Many nongovernmental agencies specialize in specific populations or industries, such as AARP, which looks out for older Americans, and the Center for Auto Safety (CAS), which is concerned with vehicular safety and standards.
