CFPB: Overtly Attacking Financial Institutions, Increasing Costs, Reducing Availability of Borrowed Funds and Failing its Mission to Protect Consumers
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) addresses perceived weaknesses in the financial markets exposed by the global financial crisis of 2007 and 2008. It established the Consumer Financial Protection Bureau (“CFPB”) to “regulate the offering and provision of consumer financial products or services under the federal consumer financial laws,” to make the markets for those products and services work for consumers and to ensure “that all consumers have access to markets for consumer financial products and services … [that] are fair, transparent, and competitive.”
The Dodd-Frank Act gives the CFPB the authority to supervise traditional depository institutions—banks, thrifts, and credit unions. It also provides authority over certain non-depository consumer financial services companies (non-banks) that offer consumer financial products and services including mortgage lenders and servicers, (originators, brokers, and servicers including loan modification or foreclosure relief services), payday lenders, private education lenders, credit rating agencies, debt collectors, student loan servicers (hereinafter I will refer to all categories whether depository or non-depository as “financial institutions”).
The CFPB also has identified a large group of potentially regulated fields such as credit card companies, leasing companies, tax refund lenders, prepaid credit card companies, debt relief service companies and this list is growing exponentially as the CFPB responds to complaints and initiates virtually unregulated investigations upon its own authority. §1055 of the Dodd-Frank Act provides that financial institutions that do not comply with the CFPB will be subject to civil actions and/or administrative enforcement proceedings including rescission or reformation of contracts, refunds of money or return of real property, disgorgement or compensation for unjust enrichment and civil monetary penalties.
It is proving clear and unfortunate that regardless of whether the CFPB has supervisory authority over a financial institution or not, its presence has resulted in substantial increased costs on financial institutions and reduced availability of credit for consumers. This flies in the face of the CFPB’s pro-consumer intent. While it may be early to say how the CFPB will maintain a balance between regulation and cost of compliance, on one hand, and availability of reasonably priced credit on the other hand, recent indications do not appear promising for financial institutions or credit availability to consumers. A classic example is the CFPB’s statements regarding unfair, deceptive, abusive acts and practices (UDAAP). The CFPB has indicated that a financial institution needs to evaluate whether a proposed customer understands all of a product’s terms. The consequences for financial institutions that are out of compliance with issues such as UDAAP are quite severe. Even those banks that believed they were fully prepared have been surprised by the scope and duration of the regulations and ongoing examinations by the compliance section of the CFPB.
Financial institutions will, and already are to some degree, erring on the side of not making certain loans, rather than exposing themselves to administrative and regulation based losses. The CFPB’s mission of preventing financial harm to consumers while promoting good practices that benefit them while empowering consumers to live better financial lives is not being met. The cost and risk of lending has continued to increase for all financial institutions; regardless of size or form and that already resulted in decreased lending. The CFPB has defeated its own intent, thus hurting both the banks and the group in was intended to protect, consumers.
Information identified in this article is from various sources, primarily the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, 2010), and the Consumer Financial Protection Bureau website: http://www.consumerfinance.gov
If you are a consumer interested in the CFPB or a financial institution interested in learning how to comply while continuing to grow your business and provide lending in accordance with the CFPB guidelines, please contact Ari D. Linden, Esquire (Pictured) at (856) 669-2577 or via email at Alinden@lauletta.com.