The subprime mortgage crisis of 2007 led to one of the worst recessions in U.S. history and subsequently to the creation of the Consumer Financial Protection Bureau. Here’s an overview of the bureau and why it matters.
####What is the CFPB?
The Consumer Financial Protection Bureau, currently directed by Richard Cordray, is an independent government agency created by Congress to protect consumers by enforcing existing consumer financial laws. The CFPB, according to its website, has three major goals: to educate consumers to better make financial decisions, enforce federal financial laws, and study current financial products to better understand the financial products and the financial market. The CFPB enforces rules that are already on the books – debt collection laws, credit reporting laws, and other consumer protection laws. Before the CFPB was created, these laws were left to be enforced by several different federal agencies, the Federal Trade Commission and Office of the Comptroller of the Currency, for example, and bank regulators. Some non-bank financial services, like payday loans and prepaid cards, had little to no federal oversight. Now, consumers have one place, one bureau to go to for nearly every aspect of financial services.
The CFPB currently oversees banks, credit card issuers, mortgage lenders, auto loan lenders, payday loan and cash advance businesses, debt collectors, and foreclosure relief services.
####Why the CFPB Matters
The CFPB has the power to file a lawsuit against financial businesses that violate consumer protection laws. Most businesses ultimately settle their lawsuits, typically agreeing to refund consumers and pay a fine to the CFPB and possibly other regulatory agencies. The CFPB can require the business to alter its business practices so that it’s no longer engaging in illegal activity. The bureau can also propose and enforce new rules that would change the way all businesses in the sector operate.
CFPB oversight can seem pretty scary for businesses that aren’t accustomed to this stricter enforcement of regulations. This is one of the reasons that many businesses oppose the CFPB., The CFPB has been criticized for having too much power. From a consumer standpoint, however, an agency like the CFPB may be necessary to provide protection from “too big to fail” banks and other financial businesses.
####Consumer Complaints and Whistleblowers
Through the CFPB website, consumers can submit complaints about predatory businesses. With enough complaints, the bureau may launch an investigation. The CFPB also allows current and former employees, industry insiders, competing businesses, and others to “blow the whistle” on businesses engaged in illegal practices. If there’s evidence of wrongdoing, the bureau will file a lawsuit.
Importance of Following the Law to the “T”
Because the CFPB has regulatory authority over several different types of business, they can take actions against multiple businesses in one fell swoop. For example, in a recent case involving a debt collector pursuing bogus debts, the CFPB brought action against the collection agency, the payment processor who collected payments on behalf of the agency, and the telemarketing company who, on behalf of the collection agency, made calls conveying unlawful content to consumers.
With this increased oversight, it becomes critical for financial businesses to follow the law when engaging with customers. The Fair Debt Collection Acts, for example, defines what third-party collectors can do when collecting on a debt. Collectors and attorneys who operate illegally, especially repeatedly, are at risk of legal action from the CFPB.
– HealPay blogger, LaToya Irby.