On July 21, sellers of consumer financial services will be answering to a new sheriff. On that day, the Consumer Financial Protection Bureau (CFPB), a pet project of President Obama’s consumer finance czar, Elizabeth Warren, comes into being, charged with preventing fraud and abuse in the mortgage, credit card, payday, debt relief and any other industry (except auto dealers, of course!) that sells financial products to consumers.
Until now, the Federal Trade Commission (FTC) has been the principal consumer financial regulator, both under its own statute and other financial laws and regulations. The FTC has exercised that authority with a vengeance, bringing hundreds of cases in tandem with state authorities against foreclosure relief, debt relief, “quick cash” (i.e., free grants, business opportunities), and other financial schemes perceived to be exploiting the economic anxieties of jobless Americans. The FTC will retain this authority under its own statute, but the CFPB is slated to be the nation’s chief consumer financial “protector,” with immense power to regulate any financial product offered “primarily for personal, family or household purposes.”
The CFPB and FTC will be required to coordinate rules, but the CFPB will sit atop the consumer financial regulatory totem pole. It will have exclusive consumer protection jurisdiction over 17 “enumerated” laws (i.e., Truth in Lending, Fair Credit Reporting, Fair Debt Collection) previously administered by the FTC and financial agencies. It will have broad regulatory and enforcement authority over the consumer financial offerings of “non-banks” as well as banks.
In addition, it will have supervisory authority (i.e., reporting, examinations, registration) over big banks (more than $10 billion in assets), mortgage, payday and student lenders regardless of size, and other “larger” non-banks, based on size, assessment of consumer risk, and other factors. (It already has announced plans to extend its supervisory powers to debt collection, debt relief, consumer reporting, consumer credit, money transmitting, check cashing and prepaid cards.) Its freedom to act will be considerable, subject only to a supermajority veto of a new Financial Oversight Council. It will be largely independent of Congress (funded principally from the Fed’s budget) and bigger than the FTC. It will be a regulatory behemoth – an “FTC on steroids.”
In addition to enforcing the enumerated laws, the CFPB will have wide authority to prohibit “unfair and deceptive” practices, similar to the FTC’s. Unlike the FTC, though, it also will have power to prohibit “abusive” practices. The FTC primarily enforces “truth in advertising,” rarely using its “unfairness” authority because of inherent difficulties in defining the term (What is unfair?). The CFPB can be expected to act much more as a quasi-legislative policymaker, making full use of its powers not only to enforce truth (i.e., clear, timely disclosures) but to impose what it thinks is “right” and “fair” (i.e., banning unaffordable loans, prepayment penalties, “excessive” fees and the like).
Warren, who is setting up the CFPB and is a potential candidate to head it, has made clear its first priority will be the mortgage industry that contributed to the housing crisis. Undoubtedly, though, its reach will extend into all corners of consumer financial services. If you’re offering mortgage, credit card, credit reporting, credit counseling, foreclosure/debt relief, payday or other financial products to consumers, it isn’t too early to say hello to your “new regulator.” To get more acquainted, visit www.consumerfinance.gov.
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