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PADM 5290 – 020 Spring, 2017
Nadine Waslosky, Student ID 100987345
The Consumer Financial Protection Bureau: Its origin, structure and controversy
Few agencies have generated as much controversy as the Consumer Financial Protection
Bureau (CFPB.) The brainchild of Sen. Elizabeth Warren when she was still a professor and the
product of the Dodd-Frank Wall Street Reform Act, this new agency heightens government
account-ability by consolidating in one place responsibilities that had previously been scattered
across government. Like, the Securities Exchange Commission (SEC) that regulates stocks, and
the Federal Deposit Insurance Commission (FDIC) that regulates banks, the CFPB regulates
financial products. The agency also has responsibility for supervision and enforcement with
respect to the laws over providers of consumer financial products and services that escaped
regular Federal oversight. It is to protect families from unfair, deceptive, and abusive financial
practices. In 2009, then President Obama urged Congress to give the consumer agency the same
accountability and independence that the other banking agencies have and sufficient funding so it
could ensure that powerful financial companies would comply. In July 2010, Congress passed
and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The CFPB was created and acts as legislature, prosecutor, judge and jury all rolled into one. But
why was the CFPB created?
Beginning in 2007, the United States faced the most severe financial crisis since the
Great Depression. Millions of Americans saw their home values drop, their savings shrink, their
jobs eliminated, and their small businesses lose financing. Credit dried up, and countless
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consumer loans, many improperly made to begin with, went into default. Foreclosures reached
an all-time high. For many decades, rising wages and growing savings meant that American
families tended to carry only modest amounts of debt. But wage stagnation that began in the
1970s, combined with rising expenses for housing, health care, transportation, child care, fuel,
and taxes, pushed more families into debt.
At the same time households saw a significant increase in access to credit, and many of
the old rules regulating credit were gone. In the 2000s, there were widespread failures in
consumer protection and rapid growth in irresponsible lending practices. Many lenders took
advantage of gaps in the consumer protection system by selling mortgages and other products
that were overly complicated. This left many Americans with loans that they did not fully
understand and could not afford. Although some borrowers knowingly took on too much debt,
millions of Americans who behaved responsibly were also lured into unaffordable loans by
misleading promises of low payments. Even those who avoided excessive risk were caught.
They saw the value of their home plummet when neighbors lost homes in foreclosure. Those
who used credit cards and home equity lines of credit saw increases in interest rates. And those
who had saved regularly saw their retirement funds lose significant value.
And so, the Dodd-Frank Wall Street Reform and Consumer Protection Act became a
major initiative of Congress. It is many different things, addressing different parts of the
financial system. It applies to trillion-dollar banks the same as small community banks with less
than $5 million in assets. New laws pertaining to mortgages, derivatives, financial consultants,
merchant card processing fees, and financial products and services were sweeping. Title X of
the Dodd-Frank bill, the Consumer Protection Act, lays the foundation for this new agency.
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And it remains one of the major controversies of Dodd-Frank, with accusations that the powers
of the CFPB are too vast.
The CFPB’s objective is to create and enforce federal consumer financial protection laws,
as well as to promote financial education for consumers. The CFPB’s objective is
straightforward: To create access for all types of consumers to financial markets, products, and
services that are fair, transparent, and competitive. Specifically, it has the following authorities:
Ensuring that consumers have timely and understandable information; Prohibiting unfair,
deceptive, abusive, or discriminatory business practices; Identifying and addressing outdated or
burdensome regulations; Promoting transparent, efficient, and competitive markets for consumer
financial products. The CFPB is to develop and implement financial education programs that
give consumers a better understanding of their own choices. The CFPB is to administer a
telephone hotline and web presence for collecting and addressing consumer complaints about
financial products. And the CFPB is to collect research about consumer financial markets of
interest to the public to inform decision making among businesses, consumers, and regulators.
The Bureau has broad powers and can impose penalties and create new regulations. It
has supervisory authority over banks, thrifts and credit unions with over $10 billion in assets, as
well as many nonbank consumer financial service providers, such as mortgage lenders and
servicers, student lenders and servicers, payday lenders, debt collections and consumer reporting
agencies. And because it has a one-size fits-all rule making authority, it rewards the largest
banks and less regulated nonbank lenders, giving them a competitive advantage over credit
unions and small banks since they have a centralized compliance office and hundreds of people
whose whole job it is to deal with complex regulations.
The CFPB is led by a single executive director, appointed by President Obama under
“recess appointment” powers. Richard Cordray was appointed the first director of the Consumer
Financial Protection Bureau. He is a former attorney general from Ohio, where he earned a
reputation for aggressively protecting homeowners and investors in battles with big financial
companies. Republicans had been stonewalling Cordray’s nomination in protest of the structure
of the new agency. So, Mr. Obama used a recess appointment. Normally, the Constitution
requires the President to secure Senate confirmation before appointing cabinet secretaries and
equivalent officers to lead federal agencies. Richard Cordray’s term ends in July of 2018 and it is
unclear that the current administration has the power to remove Richard Corday.
Once established, the CFPB quickly began issuing guidelines and regulations to lenders
about vetting and managing the service providers they use in the mortgage origination process,
