A creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. Law 111-203 ("Dodd-Frank Act"), the Consumer Financial Protection Bureau ("CFPB") is charged with regulating consumer lending activities of financial institutions and, in partnership with state attorneys general, enforcing numerous federal consumer protection laws. For commercial litigators involved in the defense of financial institutions in federal and state consumer protection lawsuits and attorney general investigations, the ongoing development and actions of the CFPB are important concerns. This article discusses the structure and logistics of the CFPB's regulatory and enforcement mechanisms, what the CFPB has been doing since its creation, and what financial institutions and their attorneys can anticipate from the agency moving forward.

I.          STRUCTURE, PURPOSE, AND ENFORCEMENT

Previously, agencies charged with enforcing various consumer protection laws were spread across the government, including the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the FDIC, the Department of Housing and Urban Development, and the National Credit Union Association. Pub. Law 111-203 § 1061; 12 U.S.C. § 5581. Some of the 17 laws previously enforced by these agencies that will now be enforced by the CFPB include the Fair Debt Collection Practices Act ("FDCPA"), the Fair Credit Reporting Act ("FCRA"), the Equal Credit Opportunity Act ("ECOA"), the Truth-in-Lending Act ("TILA"), and the Real Estate Settlement Procedures Act of 1974 ("RESPA"). § 1002; 12 U.S.C. § 5481. The date of transfer of these responsibilities from the current agencies to the CFPB has not been identified, but any currently pending or existing actions related to the various laws to be enforced will be transferred to the CFPB. §§ 1062, 1063; 12 U.S.C. §§ 5582, 5583.

Structure

The CFPB exists within the Federal Reserve ("Fed"), but it is an expressly independent unit. §1011; 12 U.S.C. § 5491. The Fed is essentially prohibited from intervening in CFPB action, including rulemaking, orders, and personnel. No federal government authority can require the CFPB to submit advance versions of communications with Congress as long as the CFPB conveys that its views are those of neither the Fed nor the President. § 1012; 12 U.S.C. § 5492.

The director of the CFPB is the only political appointment, for a term of five years, and he or she must be confirmed by the Senate.  § 1011; 12 U.S.C. § 5491. Recently, President Obama declined to nominate the architect of much of the CFPB, Elizabeth Warren, and instead nominated former Ohio Attorney General Richard Cordray. The director occupies a significant role in the affairs of not only the CFPB, but also several other financial regulatory entities, such as the FDIC and the new financial Oversight Council created by the Dodd-Frank Act. § 111; 12 U.S.C. § 5321. The concentration of such great authority in a single individual has been a sticking point with Congress as it considers the President's nominees.

Several units within the CFPB will assume the regulatory functions of the agencies currently charged with enforcing federal consumer protection laws, including departments focusing on research, community affairs, military service-member affairs, fair lending and equal opportunity, and financial protection for older Americans. § 1013; 12 U.S.C. § 5493.

Purpose and Duties

The designated functions and duties of the CFPB extend to all types of financial institutions, including banks, loan modification companies, brokers, nonbank lenders, small banks and large banks. The CFPB's stated mission is to help "consumer financial market works by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives." CFPB, Building the CFPB at 2 (July 18, 2011). The Dodd-Frank Act empowers the CFPB to supervise persons and entities offering financial services for compliance with federal consumer protection laws; issuing rules, orders, and guidance implementing such laws; conducting educational programming; and collecting and monitoring consumer complaints and information relevant to the functioning of financial markets. § 1021; 12 U.S.C. § 5511. The CFPB will have the authority to issue rules, orders, and guidance necessary to carry out federal consumer protection laws.  § 1022; 12 U.S.C. § 5512. The Dodd-Frank Act grants Chevron deference to the CFPB's interpretation of federal consumer protection laws. Id.

Full supervisory authority of the CFPB extends to all depository financial institutions with assets over $10 billion, with less extensive authority over smaller banks. § 1025; 12 U.S.C. § 5515. Such authority entails examinations of large institutions to ensure that these entities comply with consumer laws throughout the process of developing products, marketing, originating, and managing assets. Id. The CFPB has indicated that it will implement ongoing supervisory programs for certain institutions, rather than periodic examinations.

Additional authority is far-reaching. The CFPB will supervise non-depository institutions, such as participants in mortgage lending, larger participants in markets for other consumer financial products (to be defined by rulemaking), and any designated non-depository institution that the CFPB determines to be engaging in conduct that poses risks to consumers by offering consumer financial products. § 1024; 12 U.S.C. § 5514. Additionally, the CFPB has authority over private education loan providers, payday lenders, and certain providers of services to supervised institutions. Finally, the CFPB will have limited authority over smaller banks. As the CFPB begins to take shape and issue regulations, specific rules applicable to these entities will come into focus.

Enforcement Mechanisms

In states with active attorneys general, the Dodd-Frank Act will almost certainly result in an uptick in the number of enforcement actions. The unique enforcement scheme empowers state attorneys general to bring an action in federal district court or state court to enforce federal consumer protection laws arising under Title X of the Dodd-Frank Act. § 1042; 12 U.S.C. § 5552. A state attorney general may also bring an action to enforce any CFPB regulation (but not the underlying statute) against a national bank or federal savings association. Id. A state regulator (other than attorney general) may enforce Title X of the Dodd-Frank Act and CFPB regulations against any entity authorized to do business under state law. Id.

Beyond enforcing its regulations through state attorneys general, the CFPB may bring its own enforcement actions, including seeking cease-and-desist orders for perceived violations of federal consumer protection laws, injunctive relief, and actions for civil penalties outlined in the CFPB. § 1054, § 1055; 12 U.S.C. § 5564, § 5565. The Dodd-Frank Act provides that collected civil penalties shall be paid to "victims" of violations of consumer protection laws or, if this is not practicable, for financial education purposes. Numerous other enforcement provisions are spread throughout Title X of the Dodd-Frank Act that allow increased powers for state attorney generals and the enforcement arm of the CFPB.

 II.         CFPB PROJECTS SINCE INCEPTION

Although the CFPB does not yet have an official director and has been operating in a preliminary form, it has already initiated several projects. First, the CFPB launched the "Know Before You Owe" program in May 2011, an effort to combine the two federally required mortgage disclosures (RESPA and TILA) into one straightforward form. The CFPB has sampled two alternate forms with groups of consumers, and this type of process that precedes formal rulemaking is characteristic of the operations of CFPB.

Another initiative of the CFPB was an examination of how the Credit Card Accountability and Disclosure Act of 2009 ("CARD Act") has impacted the credit card marketplace in terms of pricing and disclosures. The CFPB sponsored a conference to evaluate the CARD Act and followed up with a published report.

Finally, the CFPB has issued reports to Congress on variations in credit scores sold to creditors versus those sold to consumers and on remittance transfers. Regarding remittance transfers, the CFPB examined the cost to consumers in terms of exchange rates and credit scoring. The CFPB issued a notice and request for comment on "defining a larger participant" in consumer financial markets, and the agency has communicated with community bankers in every state.

Accordingly, even though the CFPB was not set into motion until July 2011, the agency has already been at work on research, communication, and reporting. As the director and leadership become established, the enforcement role will likely assume a greater portion of the mission and function of the CFPB.

III.        THE FUTURE OF THE CFPB

Although a major portion of the CFPB's work involves consolidating and continuing pre-existing enforcement activities of various governmental agencies, the Dodd-Frank Act clearly envisions a new and expanded oversight role for the CFPB. Until the CFPB is truly up and running, new regulations and enforcement will occupy a smaller percentage of the agency's time and efforts. However, Congress has given the CFPB the resources and direction to provide another regulatory level in the financial services industry.

For financial institutions that are unfamiliar with attorney general investigations, now is a good time to identify the process and best practices associated with this type of litigation. Financial institutions and attorneys who regularly defend banks can expect the CFPB to partner with state attorney generals to enforce current and new regulations. Additionally, the CFPB has made abundantly clear that it will focus on consumer perceptions and understandings of financial products. Previously, technical compliance with federal regulations and laws was often enough, but under Title X of the Dodd-Frank Act, the CFPB is given the authority to create and enforce new regulations against products and practices it perceives to be unfair and deceptive.

Even though the ultimate role of the CFPB continues to develop, attorneys who work with banks in defending state and federal consumer protection claims should be aware of and stay tuned for additional changes from this new agency.