On Friday, October 11, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray addressed a group of practicing attorneys and law students in Columbus, Ohio. In his remarks, Director Cordray provided an overview of the two-year-old agency and its framework. He explained that the CFPB serves a two-fold purpose:
- To reduce the complexity of the financial system; and
- To educate the American public regarding financial literacy.
To serve this purpose, Director Cordray explained the agency’s framework includes six tools that the CFPB uses to carry out its duties: Enforcement, Supervisory Authority, Regulatory, Congressional Reports, Consumer Response and Consumer Education.
Enforcement: Director Cordray explained the CFPB has the authority to pursue administrative actions and/or bring actions of the law in court against alleged violators.
Supervisory Authority: Director Cordray discussed the fact that the CFPB has the ability to conduct examinations of banks and other financial services companies. This function serves as a consumer remediation measure in that it is used to change the behavior of companies where applicable. And penalties can be assessed as well.
Director Cordray also noted that the CFPB is one of the few agencies to hold both enforcement and supervisory authority functions.
Regulatory: Under Dodd-Frank, the CFPB has the authority to write rules and regulations. Here, Director Cordray emphasized the significant task Congress charged it with – writing new mortgage rules, which are required to be in place by January 2014. Director Cordray referred to this undertaking as the “biggest historic set of changes that occurred in the mortgage market.” He further explained that the CFPB’s rules affect two major areas, mortgage origination and mortgage servicing.
Going forward, the CFPB is setting its sights on the prepaid debit cards. Director Cordray projected that $170 billion are expected to be loaded onto these cards next year. Accordingly, the CFPB plans to write rules that protect consumers regarding this market.
Congressional Reports: The CFPB has a duty to prepare congressional reports regarding various industries and related legislation. Director Cordray discussed a recent CFPB report, issued on October 2, which addressed the effectiveness of the 2009 Credit Card Accountability Responsibility and Disclosure Act (CARD Act). He explained that the CFPB determined the CARD Act is a significant success for several reasons, including the fact that consumers are paying $4 million in fees less than before the CARD Act. He did note that further work is needed in this area.
Consumer Response Function: Congress wanted a system to address consumer complaints, Cordray explained. To comply, the CFPB began addressing one product at a time. First, the agency addressed credit cards. Then the agency accepted complaints regarding the mortgage industry. The agency is projected to receive 150,000 complaints a year (which is more than any federal banking agency receives). And the agency does not yet accept complaints regarding all financial services products. It plans to add new products later.
Importantly, the CFPB uses the consumer response function as a way to identify trends. The CFPB finds this tool useful in identifying which problems warrant further investigation.
Director Cordray speculated that the consumer response function could develop to include a rating of financial services companies based on consumer complaints.
Consumer Education: Finally, Director Cordray discussed the CFPB’s plans to emphasize financial literacy with the general public. He is meeting with companies and churches trusting that they will pay more attention in this area. For instance, he is encouraging employers to include financial literacy programs in benefit packages. As to churches, he is meeting with church leaders to ensure congregations are aware of CFPB services.
The goal of Cordray’s financial literacy platform comprises three principles:
- A basic financial literacy;
- An understanding of small financial decisions that accumulate over time (saving, spending and retirement); and
- An understanding of significant financial decisions (paying for college, buying a home). The CFPB has an online module regarding paying for college and plans to launch a similar module regarding owning a home in the spring of 2014.
When asked about the future of the agency, Cordray, a self-professed “two-thirds of the glass half-full” optimist, explained that he is hopeful that the agency will continue to thrive under a new administration. In other words, the CFPB is here to stay.