Why We Need the CFPB

Welcome to Opportunity Fund’s new blog series on the Consumer Financial Protections Bureau (CFPB). The CFPB is a federal agency that acts as a buffer for consumers against financial fraud and abuse. It has come under heavy scrutiny in recent months.  Opportunity Fund recognizes that many of our clients and stakeholders benefit from the protections that the CFPB provides. This blog will follow developments concerning the future of the Bureau and what impact those changes may have for the communities we serve.

Established under the Dodd-Frank Act of 2010, the CFPB is a regulatory body whose mission is “…to make consumer financial markets work for consumers, responsible providers, and the economy as a whole. We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information, steps, and tools that they need to make smart financial decisions.”[1] In other words, the CFPB protects and educates consumers so that they can avoid financial hardship due to unlawful and unethical financial practices[2]. The financial crisis of 2008 made clear that unchecked financial markets can do tremendous harm to both families and our national economy.

Under the leadership of Director Richard Cordray, the CFPB has written rulings that protect consumers from abusive financial practices such as pay-day lending “debt traps”[3], set new transparency and fiduciary standards for the mortgage lending industry[4], and provided consumers more than $11.7 billion in financial relief through its supervisory and enforcement actions[5]. While the CFPB doesn’t do much work directly on behalf of small business owners, we know that these entrepreneurs are also consumers – taking out personal mortgages, student loans and other products.

Through Opportunity Fund’s own research on “alternative loans”[6] and our experience as community practitioners we have seen that, without appropriate and comprehensive oversight, financial institutions will often engage in practices that harm the most vulnerable consumers. These include many of our clients who are themselves from communities that have historically lacked access to transparent financing and often have limited experience in dealing with financial institutions. The low-income and minority communities we serve often benefit most from the protections provided by regulatory authorities such as the CFPB.

In the past few months, the CFPB has come under intense scrutiny by all three branches of the federal government. These challenges include a court review of its single-director structure[7]; a congressional challenge to several aspects of the Bureau’s regulatory authority and funding structure[8]; as well as potential personnel changes pursued by the current Administration[9]. The summarizing point is that all of these lines of query pose a threat to the independence and thus the effectiveness of the Bureau to act as a consumer watchdog free of the political pressures of varying Administrations and Congresses. These challenges all have the potential to reduce consumer protection where it is needed most.

This blog series will update you on the various challenges that the CFPB faces as well as efforts by Opportunity Fund and others to help preserve this important federal agency. Subscribe for more policy updates from Opportunity Fund.

[1] https://www.consumerfinance.gov/about-us/the-bureau/

[2] http://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp

[3] https://www.nytimes.com/2015/03/27/business/dealbook/consumer-protection-agency-proposes-rules-on-payday-loans.html

[4] http://time.com/money/4289145/mortgage-closing-disclosures/

[5] http://files.consumerfinance.gov/f/documents/07132016_cfpb_SEFL_anniversary_factsheet.pdf

[6] Unaffordable and Unsustainable-The New Business Lending on Main Street_Opportunity Fund Research Report_May 2016

[7] http://www.cnbc.com/2017/02/16/courts-just-threw-a-lifeline-to-the-consumer-financial-protection-bureau.html

[8] http://www.latimes.com/business/lazarus/la-fi-lazarus-cfpb-republican-bills-20170221-story.html

[9] https://www.wsj.com/articles/trump-administration-looks-to-restructure-cfpb-1486116000