The Consumer Financial Protection Bureau: A Public Solution for Widespread Individual Problems
by Scott Klinger, 7/23/2014
The Great Recession that started in 2007 wiped out $7 trillion of wealth in America and led to 4.5 million families losing their homes to foreclosure. As people picked up the pieces from the meltdown, the abuses within the financial services industry became increasingly clear. An angry public demanded action.
Two years later and after much resistance from the financial sector, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, establishing, among other things, the Consumer Financial Protection Bureau (CFPB). The CFPB was the brainchild of then-Harvard University professor and now-U.S. Sen. Elizabeth Warren (D-MA), who also served as the CFPB’s first director. Since formally opening its doors on July 21, 2011, the CFPB brought the regulation of an array of consumer financial services together under one roof. The CFPB is the latest effort by the government to learn from past problems and establish public protections for the future.
Responding to social and economic crisis is one of the ways the federal government serves the American people. As early as the 1860s, in the midst of the Civil War, President Abraham Lincoln appointed a single chemist, Charles Wetherill, to a post inside the Agriculture Department and charged him with protecting the public from the growing problem of adulterated foods. From this one employee, today’s Food and Drug Administration has grown.
One of the CFPB’s most significant innovations has been the Everyone has a Story consumer protection database. More than 400,000 stories have been submitted, many of them documenting abuse by financial service providers. Having such a rich array of stories has allowed CFPB staff to spot trends and to take action. Each complaint is reviewed, and the ones indicating a problem that needs resolution are forwarded to the company involved. The firm then has 15 days to respond to each complaint and to propose a resolution. The CFPB believes that inviting the submission of complaints in the form of stories makes consumers more likely to report problems. Using the story bank allows other regulators to more quickly understand emerging abusive practices, too.
Half of the complaints received by the CFPB have involved mortgage problems, followed by complaints about credit card fees and practices, bank fees, and credit agency reporting problems.
In addition to collecting consumers' stories online, CFPB staff have traveled to 26 cities to hold town hall meetings in which they listen to consumer complaints and concerns and answer questions. The goal is to increase public understanding and help individual consumers make more informed financial decisions.
Over the last three years, CFPB enforcement actions have returned $4.6 billion to 15 million consumers who were subjected to illegal and abusive practices by the financial services industry.
When agency regulators have spotted trends, they have sought collective resolution. Over the last three years, CFPB enforcement actions have returned $4.6 billion to 15 million consumers who were subjected to illegal and abusive practices by the financial services industry. In one of their largest enforcement actions, the CFPB ordered the five largest credit card companies (Capital One, Discover, American Express, Bank of America, and J.P. Morgan Chase) to refund $1.5 billion to consumers for charges pertaining to poorly disclosed add-on products.
Earlier this month, the CFPB issued a proposed rule to make its consumer story bank public; individuals could “opt-in” to having their stories publicly shared so that other consumers can see the problems their fellow citizens report. To read and/or submit a comment on the proposed rule, click here. Needless to say, industry opposes this rule.
The CFPB has also started to examine payday lenders, debt collection agencies, consumer wire transfers, and credit rating agencies. More than 30 million Americans have been contacted by debt collection agencies, and about 12 million others are customers of the payday lending industry. But now they are now protected by new CFPB rules that outlaw threats and other abusive conduct. Earlier this month, the CFPB fined payday lender Ace Cash Express $5 million and forced them to return an additional $5 million to customers after the company was found to have violated debt collection rules.
The CFPB is also helping to educate consumers to prevent financial services agencies from taking advantage of people. They’ve gathered more than 1,000 of the most commonly asked consumer questions and posted answers to these questions online. Nearly three million Americans have visited the Ask CFPB page of the agency’s website. The CFPB has also launched a series of “Know Before You Owe” tools aimed at college students and other young people using credit for the first time. The agency is developing financial literacy curriculum for K-12 teachers and for other groups with special financial needs such as military service members, veterans, and older Americans.
The CFPB is hard at work training bank examiners and regulators in other government agencies, helping them identify and report abusive practices occurring in the financial firms under the jurisdiction of those agencies.
One sign of the CFPB’s success is that it has made political enemies. The agency has faced several lawsuits challenging its constitutionality. Last February, the House of Representatives passed the Consumer Financial Freedom and Washington Accountability Act, which would gut the authority of the CFPB and eliminate its status as an independent agency.
The CFPB has accomplished an enormous amount in its short life. It is a model for responsive, interactive government. Thanks to its innovative work and dedicated staff of 1,300, the American public is much better protected against the abusive practices that were a critical element of the financial collapse of 2007.