Continuing the theme of this “Brave New World” discussed in the previouspost, this post delves into the CFPB’s authority.
A major component of the Dodd-Frank Act was the creation of the CFPB – a brand new agency of government with vast powers to regulate business and industry for the protection of consumers – those buying or borrowing for their personal, family or household purposes. Unlike earlier efforts including the federal Consumer Product Safety Commission, the federal Equal Employment Opportunity Commission and the United States Civil Rights Commission, the CFPB is a self-sustaining body with almost no Congressional oversight. Its budget is fixed as a percentage of the Federal Reserve System but not controlled by the Board of Governors of the Fed. Its Director is appointed by the President and approved by the Senate, but that is about the extent of Congressional oversight, since its funding is a fixed percentage. The intended independence of the CFPB as envisioned by Professor Elizabeth Warren, now Senator Warren (D-Mass.), seems to have been fulfilled.
The CFPB was specifically charged under the Dodd-Frank Act with supervising banks, savings associations and credit unions with assets in excess of $10 billion; and five specific classes of non-depository entities: 1) those who offer or provide origination, brokerage or servicing of consumer real estate loans, or loan modification or foreclosure relief services, 2) larger participants of a market for consumer financial products or services, 3) those who are engaging in conduct that poses risks to consumers, 4) those who offer or provide private education loans, and 5) those who offer payday loans.
We are frequently asked why consumer finance companies need to pay attention to the CFPB.
The answer is simple. The CFPB under the Dodd-Frank Act has the power and authority to come into a consumer finance company office to ascertain whether any loan products, ancillary products and services or even methods of marketing to customers, constitute an unfair, deceptive or abusive act or practice. Concepts such as “ability to repay” and “net tangible benefit” – previously confined to the residential real estate mortgage world – are now being advanced by the CFPB to make the determination of whether a company’s practices are in violation of the Dodd-Frank Act. It is indeed a Brave New World for consumer finance companies.