Title X of the Dodd-Frank Act is known as the Consumer Financial Protection Act. Subtitle A of this Act establishes the Consumer Financial Protection Bureau (CFPB). The Bureau is an executive agency, and its Director is appointed by the President. The first Director of the Bureau, appointed by President Obama, is Harvard Law Professor Elizabeth Warren. The law establishes a five-year term for the Director. (H.R. 4173 Section 1011 (b)) The portions of the Dodd-Frank Act relevant to the Bureau are effective July 21, 2011. In other words, July 21, 2011 is the date of the Bureau’s authority to issue rules and orders pursuant to federal law.
The stated purpose of the Bureau is:
…to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. (H.R. 4173 Section 1021 (a))
“Federal consumer financial law” is defined in the Consumer Financial Protection Act to include the provisions of the Consumer Financial Protection Act and the enumerated consumer laws, which include virtually all federal laws that relate to consumers’ use of financial products and services. Laws that relate to mortgage lending that are listed as “enumerated consumer laws” include:
- The Home Mortgage Disclosure Act (HMDA)
- The Home Ownership and Equity Protection Act (HOEPA)
- The Real Estate Settlement Procedures Act (RESPA)
- The S.A.F.E. Mortgage Licensing Act (SAFE Act)
- The Truth-in-Lending Act (TILA)
- The Equal Credit Opportunity Act (ECOA)
- The Fair Credit Reporting Act (FCRA)
The impact of the creation of the Bureau is profound. By transferring some of the implementation and enforcement authority from agencies such as the Board of Governors of the Federal Reserve and the Department of Housing and Urban Development (HUD) to the Bureau, the Dodd-Frank Act is creating an additional agency with a large amount of regulatory authority. In addition to its rulemaking and enforcement rules, the functions of the Board include:
- Conducting financial education programs
- Responding to and investigating consumer complaints
- Researching and monitoring consumer financial products and services to identify risks to consumers
- Supervising compliance with laws listed in the Consumer Financial Protection Act such as federal consumer financial laws
The authority that is being transferred to the Bureau is the authority that relates to consumer financial protection functions. (H.R. 4173 Section 1061 (b)) This term is broadly defined as “…all authority to prescribe rules to issue orders or guidelines pursuant to any Federal consumer financial law.” (H.R. 4173 Section 1061 (a)) The transfer of this authority will leave the existing regulators, including the federal bank regulatory agencies, with less power. Even in the case of large depository institutions, authority to examine and enforce compliance with federal consumer financial laws will be divided between the primary federal banking regulators and the Bureau.
Proponents of the Bureau may argue that the existing agencies have not done enough to implement and enforce consumer protection laws that are intended to protect consumers by making financial transactions transparent, fair, and ethical. Opponents may argue that the creation of another bureaucracy is unlikely to ensure that consumers are better protected in the financial marketplace.
Mortgage professionals should be aware that under the law they fall within the definition of covered person that is presented in the Consumer Financial Protection Act. A “covered person” is a person, or an affiliate of a person, that offers or provides a consumer financial product or service. (H.R. 4173 Section 1002 (6)) “Consumer financial products or services” are defined to include the extension of credit to be used by consumers primarily for personal, family, or household purposes. (H.R. 4173 Section 1002 (5)); (15))
As covered persons, mortgage lenders, brokers, and other originators are required to comply with the provisions of the Consumer Financial Protection Act and with the regulations and guidances promulgated by the Bureau. Until the Bureau drafts and publishes its first set of regulations, the requirements for regulatory compliance are unknown. For now, those individuals and entities whose mortgages are subject to the Bureau’s oversight should be aware that the Consumer Financial Protection Act has established the following prohibited acts for covered persons:
- Offering or providing a financial product or service without complying with federal consumer financial laws
- Engaging in unfair, deceptive, or abusive acts or practices
- Failing to maintain records and to provide the Bureau with access to the records
- Knowingly or recklessly providing substantial assistance to a covered person or service provider who is engaging in unfair, deceptive, or abusive acts or practices
The Consumer Financial Protection Act does not supersede state laws other than those that are inconsistent with the provisions of the federal law. State laws are not deemed to be inconsistent with the Consumer Financial Protection Act if they offer more protection than the federal law.
Transfer of authority from existing federal regulatory agencies to the Bureau is required, by the Consumer Financial Protection Act, to occur within six months to one year after the enactment of the law. The law gives the Bureau several years to review existing regulations that address consumer financial transactions.
 The Federal Bank Regulatory Agencies include the FDIC, OCC, OTS, NCUA, and the Board of Governors of the Federal Reserve