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

Updated January 4, 2021
Introduction to Financial Services: The Consumer Financial
Protection Bureau (CFPB)

The 2010 Dodd-Frank Wall Street Reform and Consumer
business of offering those services. Dodd-Frank also
Protection Act (Dodd-Frank; P.L. 111-203) established the
provided CFPB new power to issue rules declaring acts or
Consumer Financial Protection Bureau (CFPB) to
practices associated with consumer financial products and
implement and enforce federal consumer financial law
services to be unlawful because they are unfair, deceptive,
while ensuring that consumers can access financial products
or abusive. Other aspects of the CFPB’s regulatory
and services. The CFPB also aims to ensure that markets
power—particularly the scope of its supervisory and
for consumer financial services and products are fair,
enforcement authority—vary depending on an institution’s
transparent, and competitive. Dodd-Frank consolidated in
size and whether it holds a bank charter.
the CFPB certain consumer-finance-related responsibilities
previously covered by other regulators and created new
Banks. Banks (which include institutions with a bank,
authorities unique to the CFPB, as discussed below.
thrift, or credit union charter) are regulated for both safety
and soundness
and consumer compliance. Safety and
Structure of the CFPB
soundness, or prudential, regulation is conducted by bank
The CFPB is headed by a director appointed by the
regulators and is intended to ensure that banks are managed
President with the advice and consent of the Senate for a
to maintain profitability and avoid failure. Consumer
five-year term. It is located within the Federal Reserve
compliance regulation is intended to ensure that banks
System (Fed), although the Federal Reserve Board does not
conform to applicable consumer protection and fair-lending
influence the CFPB’s budget or personnel decisions. The
laws and, for banks above a certain size, is primarily the
Federal Reserve Board cannot veto a rule issued by the
responsibility of the CFPB.
CFPB, but the Financial Stability Oversight Council, of
which the Fed chairman is a member, can overturn a CFPB
The CFPB’s regulatory authority over banks varies based
rule with the consent of two-thirds of its members. The
on whether a bank holds more or less than $10 billion in
CFPB is funded through the earnings of the Fed, not
assets (a common threshold for what qualifies as a small
through appropriations. The CFPB requests monetary
bank or a community bank). For banks with more than $10
transfers from the Fed to the extent needed to fund its
billion in assets, the CFPB is the primary regulator for
operations, subject to a cap based on a statutory formula.
consumer compliance. For banks with $10 billion or less in
For FY2020, the CFPB’s $580 million budget was below its
assets, the rulemaking, supervisory, and enforcement
$696 million cap.
authorities for consumer protection are divided between the
CFPB and the prudential bank regulators. The rules that the
CFPB Regulatory Authority
CFPB issues to implement the enumerated consumer laws
The CFPB is statutorily charged with implementing and
apply to smaller banks, but bank regulators hold primary
enforcing consumer protection laws, leading financial
supervisory and enforcement authority for consumer
education initiatives, collecting consumer complaints, and
compliance regulation of these smaller banks.
conducting consumer finance research.The CFPB has
regulatory authority over providers of an array of consumer
Nonbanks. A nonbank financial institution is an institution
financial products and services, including deposit taking,
that provides financial services but does not have a bank,
mortgages, credit cards and other extensions of credit, loan
thrift, or credit union charter. The CFPB may issue and
servicing, collection of consumer reporting data, and
enforce rules that affect many nonbank financial
consumer debt collection. The authorities that the CFPB
institutions, but the CFPB’s supervisory authority over
may exercise and the breadth of products, services, and
these institutions varies based on their activities and size.
entities that fall within its jurisdiction are considerable, but
they are also subject to certain statutory exceptions and
The CFPB is authorized to supervise three groups of
limitations. The CFPB’s regulatory authorities fall into
nonbanks. First, the CFPB supervises nonbanks, regardless
three broad categories: supervisory, including the power to
of size, in three specific markets —mortgage companies
examine and impose reporting requirements on financial
(such as lenders, brokers, and servicers), payday lenders,
institutions; enforcement of various consumer protection
and private education lenders. Second, the CFPB may
laws; and rulemaking.
supervise “larger participants” in certain consumer financial
markets. The CFPB has some discretion to determine what
The CFPB is authorized to prescribe regulations to
those markets are and what constitutes a larger participant.
implement 19 federal consumer protection laws that largely
Third, the CFPB may supervise a nonbank if, based on
predate Dodd-Frank. These “enumerated consumer laws”
consumer complaints or other sources, the CFPB has
govern a broad and diverse set of consumer financial
reasonable cause to determine that the nonbank’s financial
services and generally apply to any entity engaged in the
products or services pose risks to consumers.

Introduction to Financial Services: The Consumer Financial Protection Bureau (CFPB)
Exempted Institutions. Dodd-Frank exempts some
framework appropriately fosters the benefits of new
industries from the CFPB’s regulatory jurisdiction. The
technologies while mitigating potential risks to consumers.
CFPB generally does not have rulemaking, supervisory, or
The CFPB has launched several programs designed to
enforcement authority over automobile dealers; merchants,
reduce regulatory uncertainty for fintech products, facilitate
retailers, and sellers of nonfinancial goods and services;
industry and stakeholder coordination, and promote
real estate brokers; real estate agents; sellers of
research into fintech services and products.
manufactured and mobile homes; income tax preparers;
insurance companies; or accountants. Certain business
The COVID-19 Pandemic. Since the onset of the
practices of these entities, however, could trigger CFPB
Coronavirus Disease 2019 pandemic, many Americans
regulatory authority, such as if they engage in an activity
have lost income and had difficulty making loan payments.
governed by an enumerated consumer law.
The CFPB has responded by using its authorities to reduce
the regulatory burden on industry and encourage loan
Selected Policy Issues
forbearance and other financial relief options for affected
This section highlights selected policy issues of
consumers. However, how the pandemic will impact
congressional interest relating to the CFPB, which generaly
consumer credit markets in the future is unclear.
concern how the CFPB balances protecting consumers,
credit access, and costs to industry in its policymaking.
Agency Independence. Policymakers debate the degree of
independence the CFPB should have from Congress and the
Payday Lending. Payday loans are short-term, small-dollar
President, with some arguing that the agency can operate
loans offered for a set fee. They allow consumers to access
more efficiently when insulated from political pressures,
cash in advance of a paycheck or other scheduled payment
while others counter that such insulation decreases
(e.g., pension) with minimal underwriting conditions.
accountability. The CFPB, much like the banking
Borrowers must typically write the lender a check for the
regulators, is funded outside the traditional appropriations
loan amount that the lender can cash when the loan is due,
process, which limits congressional oversight over the
typically on the borrower’s next payday. However, many
agency. Although, as originally structured, the CFPB
consumers “rollover” these loans or get new ones for a
director could be removed from office only for cause, in
similar amount shortly after the initial loan is due for an
Seila Law v. CFPB, the Supreme Court held that this
additional fee. As a result, payday borrowers can remain in
statutory removal restriction violated the Constitution. As a
debt far beyond the original loan term, and in these cases,
result, the CFPB director now serves at the pleasure of, and
payday loans can cost much more than other credit
may be removed at will by, the President. Some have called
products. In October 2017, the CFPB finalized a rule
for legislation that would change the CFPB’s funding and
regulating payday and other high-cost installment loans.
leadership structure consistent with Seila Law and other
The rule would have, among other things, required payday
Supreme Court jurisprudence on agency independence.
lenders to verify that a borrower had the ability to repay the
loan and restricted a lender’s ability to access consumer
CRS Resources
bank accounts for loan repayment. However, in July 2020,
CRS Report R45813, An Overview of Consumer Finance
the CFPB rescinded part of the 2017 rule, including its
and Policy Issues
ability-to-repay provisions. Disagreement exists about how
to weigh a consumer’s right to access a particular financial
CRS Insight IN11059, CFPB Finalizes New Payday
product against the possible value of limiting loan terms
Lending Rule, Reversing Prior Regulation
that may encourage multiple rollovers that consumers might
have difficulty repaying.
CRS Report R44868, Short-Term, Small-Dollar Lending:
Policy Issues and Implications

Debt Collection. When a consumer defaults on a debt,
lenders often hire third parties to collect those debts.
CRS Report R46477, The Debt Collection Market and
Because consumers have no say over the debt collectors
Selected Policy Issues
that lenders choose, consumer protection laws and
regulations governing collection practices may be
CRS Report R46333, Fintech: Overview of Financial
particularly consequential. The CFPB has been actively
Regulators and Recent Policy Approaches
engaged in rulemaking to clarify and update provisions of
the Fair Debt Collection Practices Act (15 U.S.C. §§1692-
CRS Report R46332, Fintech: Overview of Innovative
1692p), which regulates the third-party debt collection
Financial Technology and Selected Policy Issues
market. In May 2019, the CFPB issued a Notice of
Proposed Rulemaking, which generally seeks to clarify how
CRS Report R46356, COVID-19: Consumer Loan
debt collectors should communicate with consumers.
Forbearance and Other Relief Options
Debate exists about whether the proposed rule’s
communication and other standards appropriately balance
CRS Legal Sidebar LSB10507, Supreme Court Rules CFPB
consumer protection concerns with costs to industry.
Structure Unconstitutional: Implications for Congress
Financial Technology. Financial technology, or fintech,
Cheryl R. Cooper, Analyst in Financial Economics
refers to financial innovations that apply new technologies
David H. Carpenter, Acting Section Research Manager
to a financial service or product. Policy questions in this
space generally relate to whether the current regulatory

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

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