As a U.S. consumer, you have probably heard about the Consumer Financial Protection Bureau at some point. But do you know what this agency does and why the government set it up? Read on to learn more about the CFPB and how it works.
As a U.S. consumer, you have probably heard about the Consumer Financial Protection Bureau at some point. But do you know what this agency does and why the government set it up?
Essentially, the CFPB is a watchdog that protects consumers in the financial marketplace and provides them a way to voice complaints about banks, lenders, credit card issuers and other businesses.
CFPB fills a void in the regulatory landscape
The subprime market meltdown that began in 2006 and the financial crisis that ensued showed the need for consumer protection in the U.S. financial marketplace.
It seems that consumers were taking out mortgages that they did not understand the terms of, which made the possibility of mortgage default more likely. There were also a variety of different entities involved in consumer financial regulation, with no single point of accountability or rule-making.
As President Barack Obama noted in a December 2011 speech touching on the outcome of such a landscape, this resulted in a situation of “Mortgages sold to people who couldn’t afford them, or sometimes even understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets – and huge bonuses – made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.”
That’s why the government set up the Consumer Financial Protection Bureau, under the auspices of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
What the CFPB does
The CFPB has regulatory authority over a variety of financial services providers, such as credit card issuing banks, mortgage lenders, loan servicers, debt collectors and student loan lenders. The three main powers the agency has over such providers are:
- Engaging in supervision, whereby it can examine them and ask for reports
- Enforcing consumer protection laws
- Making rules to enforce consumer protection laws
The agency has the authority to make laws that enforce major consumer protection laws, such as the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure (CARD) Act.
The CFPB can also issue rules to fight practices that are unfair, deceptive or abusive, that fall under the so-called UDAAP umbrella.
As for its supervisory powers, in the case of banks with more than $10 billion in assets, the watchdog looks to see if they are compliant with consumer protection and fair lending laws. However, other bank regulators supervise them for safety and solvency.
Banks with less than $10 billion in assets (those that generally fall under the community bank label) would have to follow the CFPB’s rules, but bank regulators are responsible for supervising and enforcing their compliance with consumer laws.
The CFPB also has some powers over non-banks, which are financial institutions that provide financial services but are not legally established as banks, thrifts or credit unions. The watchdog makes and enforces rules that impact all these non-banks.
It also oversees the actions of nonbanks in the mortgage market, private student loan lenders and payday lenders. And it has discretionary supervisory authority over certain “larger participants” in some financial markets.
The agency could also have cause to supervise other non-banks based on consumer complaints or if it has reason otherwise to believe that the business’s offerings pose a risk to consumers.
See related: CFPB’s fair debt collection update proposal elicits negative feedback
How the agency helps consumers
The CFPB publishes research that gives you information to make an educated purchase. It also provides consumer tips and tools, provides answers to common consumer queries and helps consumers negotiate the financial marketplace.
The agency helps consumers make informed choices in the financial marketplace by providing all this information and education. And it enables you to compare different offerings and their risks and benefits, and make the best choices that suit you.
Additionally, you don’t need to be overwhelmed by the typical legal information that lenders will offer you because the CFPB requires them to provide you with simplified disclosures before you sign on the dotted line for a mortgage, student loan or credit card.
The watchdog also researches the financial marketplace and looks for any upcoming risks to consumers. For instance, the CFPB set up a task force in 2019 to look into the existing financial marketplace and laws and see if there is any gap that needs to be addressed.
See related: Does the CFPB’s task force further consumer protection?
How to submit a complaint to the CFPB
Consumers can also submit complaints about financial services providers to the CFPB. The businesses will provide you a response to your issue through the agency as well. The CFPB will send you email feedback about the status of your report. You can also track the issue through the CFPB website.
Once you submit a complaint, the CFPB will get in touch with the business and send it and any documents you included with the complaint. The CFPB can also forward your complaint to another government agency that would be better able to deal with your case, and will inform you if it does so.
Businesses will typically get back to you in 15 days about the matter you raised and how they will address it. The process can take up to 60 days, and the business will let you know it is looking into your issue in the meantime. Once the company provides its feedback, you will have up to 60 days to respond and give feedback about how the business handled the issue.