Say Hello to America’s New Consumer Financial Cop

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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 has been setting up the CFPB (but will not head it, the White House said this week), 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.

About WilliamRothbard

William Rothbard was an attorney with the Federal Trade Commission, holding positions as an advertising enforcement attorney, Deputy Assistant Director of the Bureau of Consumer Protection, and Attorney-Advisor to FTC Chairman Michael Pertschuk. Bill has practiced law continuously since 1984, except for a two-year appointment as Counsel to the United States Senate Judiciary Committee, Subcommittee on Antitrust, Monopolies and Business Rights, in 1987-88. Bill writes a excellent blog with the latest news here.

7 thoughts on “Say Hello to America’s New Consumer Financial Cop

  1. Bret @ Hope to Prosper

    I’m glad the CFPB is finally coming into being and I think Elizabeth Warren was a great candiate to set it up. One huge structural problem is that it was placed under the authority of the Fed, who will likely interfere with any real actions against the banking community. I wish they would have set it up under the FTC to reduce overlap and increase their effectiveness.

  2. voicemail number

    Why doesn’t the President just forge ahead and name Elizabeth Warren even with all the resistance? Why should he be stymied by anyone in doing what is good and right? Let consumers know just who the folks are who are so resistant to having a strong consumer advocate at the helm of this important new agency.

  3. Sadek

    I’m glad the CFPB is finally coming into being and I think Elizabeth Warren was a great candiate to set it up. One huge structural problem is that it was placed under the authority of the Fed, who will likely interfere with any real actions against the banking community.

  4. Nick

    Seriously, I can’t believe all the comments to this point are in favor of this new level of government bureaucracy.

    Just like the C.A.R.D act was bad…so will this be. Contract law and personal responsibility would render these things moot, but not in the era of big government.

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