December 19, 2014
Introduction to Financial Services: The Consumer Financial
Protection Bureau (CFPB)
products and services, including deposit taking, mortgages,
The Consumer Financial Protection Bureau (CFPB) was
credit cards and other extensions of credit, loan servicing,
established by the Dodd-Frank Act (DFA; P.L. 111-203) to
check guaranteeing, collection of consumer report data, and
implement and enforce federal consumer financial law
debt collection associated with consumer financial
while ensuring consumers can access financial products and
products.
services. The CFPB also aims to ensure the markets for
consumer financial services and products are fair,
The authorities that the CFPB may exercise and the breadth
transparent, and competitive. Some of the CFPB’s
of products, services, and entities that fall within its
responsibilities were previously covered by other regulators
jurisdiction are considerable, but the DFA imposes some
but were consolidated in the CFPB. Other authorities are
important exceptions to and limitations on the CFPB’s
newly established.
powers. In some instances, the law clearly defines the
institutions the CFPB may regulate. In other instances, the
Structure of the CFPB
statutory language provides the CFPB a fair amount of
discretion to determine the types of institutions that may
The CFPB is headed by a director, who is appointed by the
fall within its regulatory reach. What authorities the CFPB
President by and with the advice and consent of the Senate
may exercise over which entities varies depending on the
for a five-year term. It is located within the Federal Reserve
charter of an institution, the size of an institution, and the
System (FRS), although the Federal Reserve Board does
market in which an activity takes place.
not influence the CFPB’s budget or personnel decisions.
The Federal Reserve Board also cannot veto a rule issued
Banks. Banks (which include institutions with a bank,
by the CFPB, but the Financial Stability Oversight Council
thrift, or credit union charter) are regulated for safety and
can set aside a CFPB rule with the vote of two-thirds of its
soundness as well as for consumer compliance. Safety and
members. The CFPB, which is not subject to congressional
soundness, or prudential, regulation is intended to ensure an
appropriation, is funded through the earnings of the FRS.
institution is managed to maintain profitability and avoid
The CFPB requests monetary transfers from the FRS, and
failure. The focus of consumer compliance regulation, by
the DFA caps the amount of these transfers at 12% of the
contrast, is ensuring institutions conform with applicable
FRS’s operating expenses as reported in its FY2009 Annual
consumer protection and fair-lending laws. Prior to the
Report, adjusted based on a formula set in statute. The
DFA, the federal banking regulators (the Federal Reserve
director may request additional funding in excess of the
Board, the Office of the Comptroller of the Currency, the
cap, subject to congressional appropriation. For FY2015,
Federal Deposit Insurance Corporation, and the National
the transfer cap for the CFPB is estimated to be $618.7
Credit Union Administration) were charged with the two-
million.
pronged mandate of regulating for both safety and
soundness and consumer compliance. Pursuant to the DFA,
CFPB Regulatory Authority
the CFPB acquired certain consumer compliance powers
over banks that vary based on whether a bank holds more or
Two of the major issues related to the CFPB’s regulatory
less than $10 billion in assets (a common threshold for what
authority concern what authorities the CFPB has and over
qualifies as a small bank or a community bank).
whom it may exercise them. On the first issue, the CFPB’s
authorities fall into three broad categories: supervisory,
For banks with more than $10 billion in assets, the CFPB is
which includes the power to examine and impose reporting
the primary regulator for consumer compliance, whereas
requirements on financial institutions; enforcement of
safety and soundness regulation continues to be performed
various consumer protection laws and regulations; and
by the prudential regulator. As a regulator of larger banks,
rulemaking. For example, in the rulemaking category, the
the CFPB has rulemaking, supervisory, and enforcement
CFPB acquired authority to prescribe regulations pursuant
authorities. This means the CFPB can issue rules for a large
to 19 federal consumer protection laws that largely predate
bank to follow, examine the bank to ensure it is in
the DFA. These “enumerated consumer laws” govern a
compliance with these rules, and take enforcement actions
broad and diverse set of consumer financial activities and
(such as imposing fines) against banks that fail to comply.
services. The CFPB also acquired the newly established
A large bank, therefore, has different regulators for
power to issue rules declaring certain acts or practices to be
consumer protection and safety and soundness.
unlawful because they are unfair, deceptive, or abusive.
For banks with $10 billion or less in assets, the rulemaking,
On the second issue, the CFPB generally has regulatory
supervisory, and enforcement authorities for consumer
authority over providers of an array of consumer financial
protection are divided between the CFPB and a prudential
www.crs.gov | 7-5700

---

Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)
regulator. The CFPB may issue rules that would apply to
main questions. First, is the CFPB as an institution
smaller banks from authorities granted under the federal
structured appropriately to achieve the correct balance
consumer financial protection laws. The prudential
between independence on the one hand and transparency
regulator, however, would maintain primary supervisory
and accountability on the other? Those who criticize the
and enforcement authority for consumer protection. The
CFPB’s policy choices often attribute some of the perceived
CFPB has limited supervisory authority over smaller banks;
shortcomings to what they see as the CFPB’s excessive
it can participate in examinations of smaller banks
independence, insularity, and lack of sufficient
performed by the prudential regulator “on a sampling
accountability. The presence of a director rather than a
basis.” The CFPB does not have enforcement powers over
board, some argue, leads to a lack of diversity of viewpoints
small banks, but it may refer potential enforcement actions
at the CFPB. Some also cite funding that is outside the
against small banks to the banks’ prudential regulators (the
traditional appropriations process as a contributing factor to
prudential regulators must respond to such a referral but are
the CFPB’s independence. Supporters of the CFPB
not bound to take any other substantive steps).
highlight other aspects of its structure that they argue
provide sufficient transparency and accountability,
Nonbanks. A nonbank financial institution is an institution
including the director’s biannual testimony before Congress
that provides financial services but does not have a bank,
and the cap on CFPB funding. Other structural
thrift, or credit union charter. The CFPB wields federal
characteristics, they argue, are important for ensuring that
consumer financial protection powers to regulate nonbank
the CFPB is somewhat insulated from political pressures
financial institutions, which previously were largely
and can focus on the technical aspect of policymaking.
unregulated at the federal level.
The second major policy question is whether the substance
The CFPB may issue rules that would affect some nonbank
of the CFPB’s rulemakings has struck an appropriate
financial institutions and may enforce those rules, but
balance between protecting consumers and ensuring that
whether the CFPB has supervisory authority and the ability
consumers have access to financial products while also
to perform examinations depends on the type of nonbank
safeguarding lenders from unduly burdensome regulations.
institution.
One of the long-standing issues in the regulation of
The CFPB is authorized to supervise three groups of
consumer financial services is the perceived trade-off
nonbanks. First, the CFPB supervises nonbanks, regardless
between protecting consumers and ensuring the providers
of size, in three specific markets—mortgage companies
of financial services are not unduly burdened. If regulation
(such as lenders, brokers, and servicers), payday lenders,
intended to protect consumers increases the cost of
and private education lenders. Second, the CFPB may
providing a financial product, a company may reduce how
supervise “larger participants” in certain consumer financial
much of that product it is willing to provide and to whom it
markets. The CFPB has some discretion to determine what
is willing to provide it. Those who still receive the product
those markets are and what constitutes a larger participant.
may benefit from the enhanced disclosure or added legal
Thus far, it has designated larger participants for
protections of the regulation but at the cost of a potentially
supervision in several markets, including consumer debt
higher price.
collection, consumer reporting, student loan servicing, and
Some Members of Congress believe the CFPB has struck
international money transmitters. It is considering
an appropriate balance in its rulemaking between protecting
designations in other markets as well. Third, the CFPB may
consumers and ensuring that credit availability is not
supervise a nonbank if, based on consumer complaints or
restricted due to overly burdensome regulations on financial
other sources, the CFPB has reasonable cause to determine
institutions. Others counter that some of the CFPB’s rules
that the nonbank poses risks to consumers in offering its
have imposed compliance costs on lenders of all sizes that
financial services or products.
will result in less credit available to consumers and restrict
Exempted Institutions. The DFA provides some industries
the types of products available. An analysis of whether
with exemptions from CFPB regulation. The CFPB
recent rulemaking has restricted the availability of credit is
generally does not have rulemaking, supervisory, or
complicated by the effects of the financial crisis on the
enforcement authority over automobile dealers; merchants,
supply of and demand for credit, as well as by the fact that
retailers, and sellers of nonfinancial goods and services;
many of the more significant CFPB rulemakings only took
real estate brokers; real estate agents; sellers of
effect in early 2014.
manufactured and mobile homes; income tax preparers;
CRS Resources
insurance companies; or accountants. Certain business
practices of these entities, however, could trigger CFPB
CRS Report R42572, The Consumer Financial Protection
regulatory authority, such as engaging in an activity that
Bureau (CFPB): A Legal Analysis, by David H. Carpenter.
makes them subject to an enumerated consumer law.
David H. Carpenter, dcarpenter@crs.loc.gov, 7-9118
Policy Issues
Sean M. Hoskins, shoskins@crs.loc.gov, 7-8958

The CFPB has been a controversial product of the DFA.
Much of the policy discussion around it has focused on two
IF10031
www.crs.gov | 7-5700

---