Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)

Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)

Updated January 5, 2023
Introduction to Financial Services: The Consumer Financial
Protection Bureau (CFPB)
In 2010, the Dodd-Frank Wall Street Reform and Consumer
Dodd-Frank also empowers the CFPB with new authority to
Protection Act (Dodd-Frank; P.L. 111-203) established the
issue rules declaring acts or practices associated with
Consumer Financial Protection Bureau (CFPB) to
consumer financial products and services to be unlawful
implement and enforce federal consumer financial law
because they are unfair, deceptive, or abusive. Other
while maintaining consumer access to financial products
aspects of the CFPB’s regulatory power—particularly the
and services. Dodd-Frank consolidated in the CFPB certain
scope of its supervisory and enforcement authority—vary
regulatory authorities related to consumer finance that were
depending on an institution’s size and whether it holds a
previously held by other agencies and created new powers
bank charter.
not previously held by federal regulators. Dodd-Frank
authorizes the CFPB to exercise these powers with the goal
Banks. Banks (i.e., institutions with bank, thrift, or credit
of promoting fair, transparent, and competitive markets for
union charters) are regulated for both safety and soundness
consumer financial products and services.
and consumer compliance. Bank regulators conduct safety
and soundness (prudential) regulation with the goal of
Structure of the CFPB
ensuring that banks maintain profitability and avoid failure.
Dodd-Frank established the CFPB as an independent
Consumer compliance regulation is designed to ensure that
bureau within the Federal Reserve System (Fed). The CFPB
banks comply with applicable consumer protection and fair-
is headed by a single director, appointed by the President
lending laws.
with the advice and consent of the Senate for a five-year
term. The Fed’s Board of Governors does not influence the
The CFPB and the federal banking regulators (i.e., the Fed,
CFPB’s operations other than through the Fed chairman’s
Office of the Comptroller of the Currency, Federal Deposit
role as a member of the Financial Stability Oversight
Insurance Corporation, and National Credit Union
Council (FSOC), which can overturn a CFPB rule with the
Administration) share consumer compliance regulation over
consent of two-thirds of its members. (The CFPB director is
banks, with their authorities varying depending on the
also a voting member of FSOC.) Rather than being funded
bank’s size. The CFPB holds primary consumer compliance
through regular appropriations, the CFPB funds its
regulatory authority over larger banks with more than $10
operations through monetary transfers from the Fed. The
billion in assets. Smaller “community” banks must comply
Fed must transfer amounts requested by the CFPB director
with CFPB’s rules on implementing enumerated consumer
based on the director’s determination of need, subject only
laws, but the bank regulators hold primary supervisory and
to a cap based on a statutory formula. For FY2022, the
enforcement authority for issuing consumer compliance
CFPB received approximately $642 million, which was
regulation for smaller banks.
below its $734 million limit.
Nonbanks. Nonbank financial institutions provide financial
CFPB Regulatory Authority
services but do not have bank, thrift, or credit union
Dodd-Frank charges the CFPB to implement and enforce
charters. The CFPB may issue and enforce rules that affect
consumer protection laws, lead financial education
these nonbank financial institutions, but the CFPB’s
initiatives, collect consumer complaints, and conduct
supervisory authority over these institutions varies based on
consumer finance research. The CFPB has broad regulatory
the nonbank’s activities and size.
authority over providers of an array of consumer financial
products and services, including deposit taking, mortgages,
First, Dodd-Frank expressly authorizes the CFPB to
credit cards and other extensions of credit, loan servicing,
supervise three categories of financial institutions
collection of consumer reporting data, and consumer debt
regardless of size—mortgage companies (including lenders,
collection. Although the scope of the CFPB’s regulatory
brokers, and servicers); payday lenders; and private
power is considerable, it is also subject to certain statutory
education lenders. Second, the CFPB may supervise
exceptions and limitations. The CFPB’s regulatory
nonbank institutions the CFPB determines are “larger
authorities fall into three broad categories: supervision
participants” in consumer financial markets. Third, the
(including the power to examine and impose reporting
CFPB may supervise a nonbank that, based on consumer
requirements on financial institutions), enforcement of
complaints or other sources, the CFPB “has reasonable
various consumer protection laws, and rulemaking.
cause to determine … is engaging, or has engaged in,
conduct that poses risks to consumers.... ”
The CFPB may issue regulations to implement 19 federal
consumer protection laws that largely predate Dodd-Frank.
Exempted Institutions. Dodd-Frank exempts some
These “enumerated consumer laws” govern a broad and
industries from the CFPB’s regulatory jurisdiction. The
diverse set of consumer financial services and providers.
CFPB generally does not have rulemaking, supervisory, or
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Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)
enforcement authority over automobile dealers; merchants,
Dodd-Frank also protected the CFPB director from
retailers, and sellers of nonfinancial goods and services;
presidential removal, except for cause; however, the
real estate brokers; real estate agents; sellers of
Supreme Court in Seila Law v. CFPB held this statutory
manufactured and mobile homes; income tax preparers;
removal protection unconstitutional. As a result of Seila
insurance companies; or accountants. There are, however,
Law, the CFPB director now serves at the pleasure of and
certain business practices that could trigger CFPB
may be removed at will by the President.
regulatory authority, such as when the entity engages in an
activity governed by an enumerated consumer law (e.g.,
Policymakers debate the degree of independence the CFPB
debt collection activities subject to the Fair Debt Collection
should have from Congress and the President, with some
Practices Act (FDCPA, 15 U.S.C. §§1692-1692p)).
arguing that the agency can operate more effectively when
insulated from political pressures and others countering that
Selected Policy Issues
such insulation decreases accountability and raises
Debates involving consumer protection policymaking
constitutional concerns. Some policymakers have called for
generally center on how to balance protecting consumers,
legislation that would change the CFPB’s funding and
credit access, and costs to industry. The following section
leadership structure to increase congressional and
addresses a selection of CFPB policy issues of interest to
presidential control over the agency.
Congress.
Small Business Data Collection Rulemaking. Section
Financial Technology. Financial technology, or fintech,
1071 of the Dodd-Frank Act requires financial institutions
refers to new technologies used in the provision of financial
to compile, maintain, and report to the CFPB information
services or products, such as “peer to peer” payments,
concerning credit applications made by women-owned,
digital wallets, and “Buy Now, Pay Later” financing. The
minority-owned, and small businesses. This data collection
innovated use of technologies—including internet access,
is intended to “facilitate enforcement of fair lending laws”
mobile technology, electronic payment improvements,
and to “enable communities, governmental entities, and
alternative data, and artificial intelligence—to develop
creditors to identify business and community development
consumer financial products could potentially improve
needs and opportunities of women-owned, minority-owned,
consumer experiences, lower costs, and expand access to
and small businesses.” In September 2021, the CFPB
underserved consumers. Fintech products could also pose
proposed a rule to implement this section of Dodd-Frank.
consumer protection and data security risks. Related policy
Some have expressed concerns over the regulatory costs
questions generally concern whether the current regulatory
this proposed rule could impose on small financial
framework appropriately fosters the benefits of new
institutions, which in turn could negatively affect their
technologies while mitigating potential risks to consumers.
access to credit.
The CFPB is developing a new rule to implement Dodd-
CRS Resources
Frank Section 1033 that would clarify standards regarding
CRS In Focus IF11682, Introduction to Financial Services:
consumer-authorized access to financial data and could
Consumer Finance
significantly affect the fintech industry. According to the
CFPB, a goal of the rulemaking would be to enable
CRS Report R45813, An Overview of Consumer Finance
consumers “to more easily and safely walk away from
and Policy Issues
companies offering bad products and poor service and
move towards companies competing for their business with
CRS In Focus IF12079, Digital Wallets and Selected Policy
alternative or innovative products and services.” The
Issues
rulemaking has the potential to lead to more consumer-
friendly innovation and choice, but it could also introduce
CRS Insight IN11784, Rapidly Growing “Buy Now, Pay
new risks to consumers.
Later” (BNPL) Financing: Market Developments and
Policy Issues
Agency Independence. The CFPB, much like the banking
regulators, is funded outside the traditional congressional
CRS Insight IN11745, Open Banking, Data Sharing, and
appropriations process. The agency is funded via a transfer
the CFPB’s 1033 Rulemaking
from the Federal Reserve System’s combined earnings in an
amount the CFPB director determines to be “reasonably
CRS Legal Sidebar LSB10891, Fifth Circuit: CFPB’s
necessary” to perform its statutory functions, subject to a
Funding Authority is Unconstitutional
cap. This nontraditional funding source limits congressional
oversight of the agency and is the subject of legal
CRS Legal Sidebar LSB10507, Supreme Court Rules CFPB
challenges. A three-judge panel of the U.S. Court of
Structure Unconstitutional: Implications for Congress
Appeals for the Fifth Circuit, in Community Financial
Services Association of America v. CFPB, ruled that the
CRS Report R45878, Small Business Credit Markets and
CFPB’s funding is unconstitutional in violation of the
Selected Policy Issues
Constitution’s Appropriations Clause and separation of
powers. The Department of Justice, on behalf of the CFPB,
Cheryl R. Cooper, Analyst in Financial Economics
petitioned the Supreme Court for a writ of certiorari to
David H. Carpenter, Legislative Attorney
review and reverse the Fifth Circuit’s decision.
IF10031
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Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)

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