Consumer Financial Protection Bureau
Ways the CFPB Protects You and You Don't Even Know It
The Consumer Financial Protection Bureau is a federal agency that protects consumers' finances. It regulates credit, debit, and prepaid cards. It's also the government's watchdog on payday and consumer loans. The CFPB oversees credit reporting, debt collection and financial advisory services. The Dodd-Frank Wall Street Reform Act created it in 2010.
The Bureau wrote user-safety rules for all consumer financial products. More important, it levies fines against lenders who break its rules. It also mandates that loan disputes be allowed to go to court, not just arbitration. It permanently increased Federal Deposit Insurance Corporation insurance on bank deposits to $250,000.
The CFPB also protects consumers in home real estate transactions. That includes title, escrow and financing businesses affiliated with realtors and homebuilders. It oversees equal credit opportunity and fair housing. It also sets standards for all mortgage offerings. But, it doesn't ban risky mortgage products, like interest-only loans.
The Bureau regulates risky mortgage products like interest-only loans. It requires banks to prove that borrowers understand the risks. The CFPB also makes banks verify applicants' income, credit history and job status. It reports to the Treasury Department.
On November 24, 2017, the Bureau's director Richard Cordray resigned. President Trump appointed Mick Mulvaney, director of the Office of Management and Budget, to replace him. Mulvaney imposed a 30-day freeze on hiring and issuing new regulations. The Dodd-Frank enabling legislation states that the deputy director should replace the Bureau's director should he resign. The president has the authority to appoint a new director, but he must be approved by Congress before taking office.
What the Bureau Has Accomplished
Since 2011, the Bureau has returned $12 billion to 27 million consumers who were harmed by the financial industry. For example, it forced Citibank to offer $700 million in compensation. The bankhad misled customers into buying unwanted identity theft protection.
The Bureau discovered Wells Fargo had secretly opened unauthorized deposit and credit card accounts for millions of its customers. Employees had opened the accounts and transferred funds without the customers' knowledge. They did this to meet sales goals. The Bureau required Wells Fargo to pay full restitution to the victims. It also fined Wells Fargo $100 million, and required it to pay $85 million to other regulators.
The Bureau implemented the Credit Card Act of 2009. It established 10 protections for credit card users. They include:
- No interest rate increases for the first year.
- The bank can't raise rates on an existing balance unless you've missed two or more payments. When rates do increase, they can't be retroactively applied to pre-existing balances or on any balances you've just paid.
- Payments are applied to the balances with the highest interest rates first.
- The bank must tell you 45 days before they raise the rate. That's a month longer than the previous 15-day notice.
- Banks can't assign fees on amounts greater than 50 percent over your credit limit.
- Billing statements must be sent 21 days before the payment due date. Payments are still on time as long as they are received by 5 p.m. on the due date. Payments made the day after a weekend or holiday are also on time.
The Bureau also created a credit card agreement database. It allows borrowers to compare agreements between hundreds of credit card offers.
The Bureau launched "Know Before You Owe." It combined two federally required mortgage disclosures into one simple form. It makes the costs and risks of the loan clear and allows consumers to comparison shop. It also makes it easier for borrowers to understand the risks and costs of overdraft protection. The Bureau found that borrowers who use overdraft protection pay $450 more in fees.
In 2017, the Bureau stopped payday loan traps. It required these lenders to determine upfront whether borrowers have the ability to repay the loans. It prevents these lenders from debiting from a borrower's bank account.
In 2013, the CFPB set higher standards for the mortgage market. It required lenders to verify borrowers' incomes. It discouraged introductory "teaser rates” because many subprime borrowers were caught off-guard when the rates skyrocketed in the loan’s third year.
The Bureau has released reports on:
- The impact of the CARD Act.
- How the credit score report you receive might be different from the one given to the bank.
- How banks can improve your knowledge of the exchange rates they use when you do international money transfers.
- A progress report on its accomplishments to date.
How Trump Is Weakening the Bureau
Republicans in Congress want to weaken the Bureau as part of their repeal of Dodd-Frank. They claim its regulations and lawsuits hurt businesses, especially small banks. The Bureau's opponents also argue that the director's position is unconstitutional. That's because he can only be fired by the president for malfeasance or negligence.
In 2018, the Senate rescinded a CFPB anti-discrimination regulation. The CFPB prohibited auto lenders from charging higher rates to minorities than they did to whites with the same credit score. Auto dealers say the rule hampered their ability to use rate discounts as a marketing tool.
Trump's appointment of Budget Director Mick Mulvane weakens the Bureau. Mulvaney has been one of the Bureau's opponents. In 2014, he called it a joke. He believes its independence is dangerous. But its creators said the Bureau needs its independence to maintain its watchdog function.
In 2018, the House of Representatives released a bipartisan bill that would replace the director's position with a five-member commission. The president would select commission members, but no more than three could be from any party. The bill would probably not pass the Senate.
In 2017, Republicans launched a bill to gain more control over the Bureau. The bill would give the president power to fire the director for any reason. It would also shift the Bureau's budget from the Federal Reserve to Congress.
On June 13, 2017, U.S. Treasury Secretary Steve Mnuchin released a report that proposed changes to Dodd-Frank. The report was in response to an executive order President Trump signed February 3, 2017. The plan would restructure the Bureau as a multi-member commission. Like the House bill, it would allow the president to remove the director for any cause. It would also redirect the Bureau's funding from the Federal Reserve to Congress.
On October 24, 2017, the Senate voted to rescind a new rule created by the Bureau. The rule would have allowed consumers to sue banks and credit card companies. Instead, the Senate vote upholds the banks' right to impose arbitration on consumers.
Elizabeth Warren's Role in Creating the CFPB
Senator and former Harvard Law professor Elizabeth Warren was the Bureau's founder. She has been a champion of consumer rights since 2007. That's when she realized deregulation helped banks and put consumers at risk. She believes banks should not be allowed to become "too big to fail." She also advocated making loans easier to understand.
In 2010, President Obama named her the Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB to get the bureau up and running. But the Republican majority in the House voted against her appointment as the Bureau's director.
In 2010, film director Ron Howard supported the bill with two humorous internet videos. One talked about the cost of hidden credit card charges and the other about establishing the Consumer Financial Protection Agency itself.