What Is the Consumer Financial Protection Bureau?

Ways the CFSB Protects You and You Don't Even Know It

couple being protected by CFPC
The CFPB helps consumers use credit wisely...and cut up fewer cards. Photo: Hill Street Studios/Getty Images

The Consumer Financial Protection Bureau is a federal agency that protects consumers' finances. It regulates credit, debit, and prepaid cards. It's also the government's watchdog on payday and consumer loans. The CFPB oversees credit reporting, debt collection and financial advisory services. The Dodd-Frank Wall Street Reform Act created it in 2010.

The Bureau wrote user-safety rules for all consumer financial products.

More important, it levies fines against lenders who break its rules. It also mandates that loan disputes be allowed to go to court, not just arbitration. It permanently increased Federal Deposit Insurance Corporation insurance on bank deposits to $250,000.

The CFPB also protects consumers in home real estate transactions. That includes title, escrow and financing businesses affiliated with realtors and homebuilders. It oversees equal credit opportunity and fair housing. It also sets standards for all mortgage offerings. But, it doesn't ban risky mortgage products, like interest-only loans.

The Bureau regulates risky mortgage products like interest-only loans. It requires banks to prove that borrowers understand the risks. The CFPB also makes banks verify applicants' income, credit history and job status. It reports to the Treasury Department.

What the Bureau Has Accomplished

The Bureau has returned $12 billion to 27 million consumers who have been harmed by the financial industry.

For example, it forced Citibank to offer $700 million in compensation. It had misled customers into buying unwanted identity theft protection.

The Bureau also implemented the Credit Card Act of 2009. By 2010, the Act had established 10 protections for credit card users. They include:

  • No interest rate increases for the first year.
  • The bank can't raise rates on an existing balance unless you've missed two or more payments. When rates do increase, they can't be retroactively applied to pre-existing balances or on any balances you've just paid.
  • Payments are applied to the balances with the highest interest rates first.
  • The bank must tell you 45 days before they raise the rate. That's a month longer than the previous 15-day notice.
  • Banks can't assign fees on amounts greater than 50 percent over your credit limit.
  • Billing statements must be sent 21 days before the payment due date. Payments are still on time as long as they are received by 5 p.m. on the due date. Payments made the day after a weekend or holiday are also on time.

The Bureau launched "Know Before You Owe." It combined two federally required mortgage disclosures into one simple form. It makes the costs and risks of the loan clear and allows consumers to comparison shop. 

In 2013, the CFPB set higher standards for the mortgage market. It required lenders to verify borrowers' incomes. It discouraged introductory "teaser rates” because many subprime borrowers were caught off-guard when the rates skyrocketed in the loan’s third year.

The Bureau has release reports on:

  • The impact of the CARD Act.
  • How the credit score report you receive might be different from the one given to the bank.
  • How banks can improve your knowledge of the exchange rates they use when you do international money transfers.
  • A progress report on its accomplishments to date. 

Repeal

Republicans in Congress want to weaken the Bureau as part of their repeal of Dodd-Frank. They claim its regulations and lawsuits hurt businesses. They've said that Director Cordray's position is unconstitutional. That's because he can only be fired by the president for malfeasance or negligence. 

In 2017, Republicans launched a bill to gain more control over the Bureau. The bill would give the president power to fire the director for any reason. The Bureau's budget would shift from the Federal Reserve to Congress.

 

On June 13, 2017, U.S. Treasury Secretary Steve Mnuchin released a report that proposes changes to the Dodd-Frank Wall Street Reform Act. The report was in response to an executive order President Trump signed February 3, 2017. The plan would restructure the Bureau as a multi-member commission. Like the House bill, it would allow the president to remove the director for any cause. It would also redirect the Bureau's funding from the Federal Reserve to Congress. 

On October 24, 2017, the Senate voted to rescind a new rule created by the Bureau. The rule would have allowed consumers to sue banks and credit card companies. Instead, the Senate vote upholds the banks' right to impose arbitration on consumers.

Role of Elizabeth Warren and the CFPB

Senator and former Harvard Law professor Elizabeth Warren was the Bureau's founder. She has been a champion of consumer rights since 2007. That's when she realized deregulation helped banks and put consumers at risk. She believes banks should not be allowed to become "too big to fail." She also advocated making loans easier to understand.

In 2010, President Obama named her the Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB to get the bureau up and running. But the Republican majority in the House voted against her appointment as the Bureau's director. 

In July 2011, Obama nominated Richard Cordray to be the agency's first Director. Congress approved him, and he took office in January 2012. He took some first steps toward enforcement of the Dodd-Frank regulations.On November 15, 2017, Cordray announced he would resign effective November 30, 2017. He may run for governor in his home state of Ohio.

In 2010, film director Ron Howard supported the bill with two humorous internet videos. One talked about the cost of hidden credit card charges and the other about establishing the Consumer Financial Protection Agency itself.