The Consumer Financial Protection Bureau - A Nine-Month Report Card04/08/2012 | Spring 2012 Newsletter
The Consumer Financial Protection Bureau (“CFPB”), a new federal agency, has broad authority to regulate any consumer financial practices. It has yet to adopt regulations governing the areas of most significant concern to consumers, but it recently announced ambitious plans to address a broad range of practices, including mortgage servicing companies, lending practices, bank overdraft protection policies, and the use of mandatory arbitration clauses. As a result, we should expect new regulations in these areas soon.
The CFPB was created as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”), enacted in the summer of 2010, which revamped federal laws regulating banks, securities firms, commodities traders and other financial firms. The law also gave the CFPB authority to regulate, or prohibit, any act or practice involving consumer financial products that the Bureau considers to be unfair, deceptive or abusive. Since “unfairness” is in the eye of the beholder, the CFPB has broad authority to outlaw or regulate almost any consumer financial practice it doesn’t like, ranging from credit cards and residential mortgage loans to bank deposits and ATM cards.
The agency took over most consumer financial regulation about nine months ago, on July 21, 2011, one year after Dodd-Frank was enacted. In its first regulatory actions, it picked some low hanging fruit — requiring disclosure to consumers who send money overseas. There were no existing federal rules of significance on this issue, so the Bureau was writing on a blank slate. As a result of these new regulations, beginning in February 2013, companies that send foreign remittances for consumers must provide detailed disclosures regarding fees, transfer amounts, conversion rates, taxes imposed, and when the funds will be available in the foreign country. The Bureau also created a procedure for resolving errors if something goes awry. However, foreign remittance transactions are not at the top of most people’s list of urgent concerns.
The CFPB has also embarked upon an ambitious program to address more significant concerns to consumers. In April this year, the CFPB announced that it is tackling the problem of mortgage servicers — those companies that collect residential mortgage payments and administer the loans, even though they often do not own the loan. The CFPB has also announced that it is investigating check and ATM card overdraft programs and mandatory arbitration clauses in consumer contracts to determine whether current practices are unfair and should be restricted. Just a few weeks ago, the CFPB proposed simplifying the process of charging origination fees and points on residential mortgage loans by prohibiting certain types of fees.
The Bureau is also investigating the possibility of requiring lenders to use simplified loan disclosure forms and has promised to step up enforcement against lenders whose practices discriminate against consumers. Payday lenders — who make short term high interest loans — are also in the cross hairs, with the CFPB issuing examination procedures for its staff to use when examining legal compliance by those companies.
At a recent meeting of the Banking Law Committee of the NY State Bar Association, a representative of the CFPB acknowledged that the Bureau has virtually unlimited authority to prohibit any consumer financial transactions that it finds inappropriate. At the same time, the representative insisted the CFPB would never attempt to micromanage consumer financial products, nor would it seek to impose its view of fairness on the financial industry. Only time will tell.