7. What is the “Consumer Financial Protection Act”?
The Consumer Financial Protection Act was passed in 2010 as part of the Dodd-Frank Act with the purpose of establishing the Consumer Financial Protection Bureau (CFPB).The CFPB and FTC overlap in authority to administer consumer laws. The CFPB has broad authority to regulate federal financial consumer laws including offer and sale of consumer financial products. It seeks to promote market transparency and competitiveness by making certain that consumer financial protection regulations are applied consistently. It has rulemaking and enforcement authority. The CFPB is divided into four offices:
• Office of Fair Lending and Equal Opportunity – This office is charged with oversight and enforcement of federal laws intended to ensure access to credit;
• Office of Financial Education – This office is charged with educating consumers on financial decisions;
• Office of Service Member Affairs – This office is charged with developing and implementing initiatives for military service members and their families; and
• Office of Financial Protection for Older Americans – This office is charged with facilitating the financial literacy of individuals 62 years old and older.
Authority & Procedure
The CFPB has exclusive administrative rulemaking authority for most matters affecting consumer protection. The bureau also conducts investigations into allegations of consumer fraud. Based upon the results of investigation, it may bring administrative or civil actions against covered persons for violating consumer protection laws. A “covered person” is any person or business offering or providing consumer financial products or services. Certain entities are exempt from CFPB authority, including: insurance companies, Internet service providers, real estate agents, lawyers, car dealers, and persons regulated by the SEC. The CFPB has exclusive authority to enforce consumer protection laws against non-depository institutions and insured depository institutions with $10 billion or more in assets.
• Note: The CFPB works closely with an authorized consumer advisory board to advise and consult with the CFPB in the exercise of its functions.
State Regulatory Authority
Pursuant to Title X of the CFPA, states may also regulate consumer protection, as long as state regulation does not conflict with federal laws. States may also bring actions to enforce federal consumer protection laws. Title X allows the application of state law to national banks. Federal law does preempt a state’s ability to enforce consumer protection law against national banks and other federal financial institutions if:
• the application of the state law would have a discriminatory effect on the national bank or thrift;
• the state law prevents or significantly interferes with the exercise of the national bank or thrift’s powers; or
• the state consumer law is preempted by another federal law.
• Discussion: Why do you think Congress specifically authorized an administrative body to protect consumers in transactions with financial organizations? Do you think this regulatory framework is effective? Why or why not? Why do you think the federal law allows for dual regulation (federal and state) of financial institutions?
• Practice Question: What is the role of the Consumer Financial Protection Bureau and what is the extent of its authority and jurisdiction?