Chapter V. Consumer Financial Protection Bureau (CFPB)

• Jurisdiction: United States

V. Consumer Financial Protection Bureau (CFPB)

In September 2008, the financial system went into a tailspin with the collapse of Bear Stearns, Lehman Brothers and other major financial institutions. Calls for heightened regulation of the financial sector were at all-time high. To address some of the problems that caused the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), which created the Consumer Financial Protection Bureau (CFPB). The Dodd-Frank Act tasks the CFPB with protecting consumers from abuses by companies in the financial sector, including banks, mortgage lenders, debt-collection agencies, payday lenders and others.

Prior to the creation of the CFPB, federal regulation of consumer finance consisted of a patchwork of seven different agencies.⁵¹ None of these agencies made consumer finance a priority, and major swaths of the financial sector were not subject to significant regulation.⁵² The Dodd-Frank Act consolidated the piecemeal regulatory powers originally held by these agencies into the CFPB. It also expanded the CFPB's regulatory power to include previously under-regulated financial service providers, such as payday lenders, debt-collection companies, credit-reporting companies and mortgage servicers.⁵³

The CFPB officially opened for business in July 2011. Since its inception, the CFPB has been a political lightning rod. The controversy surrounding the CFPB is in part due to its sweeping powers and its unique structure. Though the CFPB is technically housed within the Federal Reserve, it operates independently with virtually no oversight. Unlike other independent agencies, the CFPB has a single director, who can only be removed for cause. Additionally, the CFPB is funded by the Fed — not the congressional appropriations process — which gives Congress less control over the agency.

Despite the controversy surrounding the agency, the CFPB has not shied away from taking on banks and other financial service companies. It has conducted major enforcement actions against entities within its purview and has assessed billions of dollars in penalties and restitution payments. Given the scope of the CFPB's powers and aggressive enforcement, it is critical for regulated companies to become familiar with the extent of the CFPB's authority, its examination and enforcement processes, and the major trends in the targets of its enforcement actions.

A. The CFPB's Powers

The Dodd-Frank Act vests the CFPB with strong supervisory, enforcement and rulemaking powers. The CFPB has exclusive authority to supervise regulated companies' compliance with a number of federal consumer finance laws, including the Federal Credit Reporting Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act and the Truth in Lending Act. The CFPB can also promulgate rules under these federal consumer laws.

The types of companies that the CFPB regulates fall into two main categories. The first category is "covered persons," which are companies that offer or provide consumer financial products or services. The second category is affiliated service providers, which are entities providing a "material service," such as design, marketing, operation and processing, to a covered person in connection with offering a consumer financial product or service.⁵⁴

Under its supervisory authority, the CFPB can set up a team of regulators to examine a company's records and question the company about its practices. In practice, the CFPB examines a limited group of companies and prioritizes companies with operations that significantly impact consumers.

The Dodd-Frank Act also empowers the CFPB with the broad authority to investigate and enforce violations of federal consumer finance laws or Dodd-Frank's prohibition on unfair, deceptive, or abusive acts or practices.⁵⁵ This power allows the CFPB to issue civil investigative demands (CIDs), through which it can request the production of documents, responses to interrogatories, and oral testimony from corporate representatives at investigative hearings.⁵⁶ The CFPB's enforcement authority also allows it to litigate cases administratively or in federal court. Regardless of the forum, the CFPB can...