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New Consumer Financial Protection Bureau is Open for Business

By Dennis Cuevas, Consumer Protection Counsel

Dennis Cuevas, Project Director and Chief Counsel, Consumer Protection

Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 [P.L. 111- 203], the Consumer Financial Protection Bureau (CFPB) is an independent bureau within the Federal Reserve System that will help consumers in the area of mortgages, credit cards, and other consumer financial products and services. In 2010, President Obama appointed Harvard Law Professor Elizabeth Warren to oversee the CFPB’s development. On July 17, 2011, the president nominated former Ohio Attorney General Richard Cordray to head the bureau. The CFPB officially launched July 21 and, to date, employs more than 400 individuals.

The CFPB currently includes six primary divisions: Consumer Engagement and Education Division, which handles all consumer education initiatives; Supervision, Fair Lending, and Enforcement Division, which ensures compliance with federal consumer financial laws; Research, Markets, and Regulations Division, which is responsible for understanding consumer financial markets and consumer behavior and for evaluating the need for regulation and the costs and benefits of the regulations; Office of General Counsel, which is responsible for the Bureau’s compliance with all applicable laws; External Affairs, which ensures the Bureau maintains a dialogue with various stakeholders to foster understanding, accountability, and transparency; and the Chief Operating Officer, which will sustain the operational infrastructure to support the entire organization.

As stated on its website, “the central mission of the CFPB is to make markets for consumer financial products and services work for Americans-whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” The CFPB will supervise banks, credit unions, and financial companies and enforce federal consumer financial laws. In addition, the CFPB will promote consumer financial education, as well as gather and analyze information to better understand consumers, financial services providers, and consumer financial markets.

The CFPB will work primarily in five areas. The CFPB will maintain a toll-free consumer hotline where consumers who have been victimized by unscrupulous financial practices can report unfair, deceptive, and abusive practices. Currently, the CFPB has a hotline in place for credit card complaints. It will soon develop and roll-out complaint mechanisms for other types of consumer complaints. The CFPB plans to build an efficient and effective consumer response system using the latest technology and one that will be helpful to consumers, while minimizing the burden on financial institutions. The CFPB will also monitor the financial services marketplace and review financial products to prevent deceptive and predatory lending practices, with an intended goal to ensure these types of companies are being transparent, acting legally, and treating customers fairly. Furthermore, the CFPB will enforce 18 federal consumer financial laws and penalize companies that violate the law. Among the laws the CFPB can enforce are, inter alia, the Fair Credit Reporting Act, which regulates the collection, dissemination, and use of consumer information, including consumer credit information; the Truth in Lending Act, which promotes the informed use of consumer credit by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed; the Real Estate Settlement and Procedures Act, which insures that consumers are provided with more helpful information about the cost of the mortgage settlement; the Fair Debt Collection Practices Act, which eliminate abusive practices in the collection of consumer debts; and the Credit Card Accountability Responsibility and Disclosure Act, which establishes fair and transparent practices relating to the extension of credit under an open end consumer credit plan.

The CFPB can review the practices of various financial services providers, such as credit card marketing, mortgage lending, and credit bureau reporting and step in to require financial institutions to tighten up their business practices if those practices are deemed abusive, unfair or illegal. Lastly, the CFPB will provide robust educational materials and conduct special outreach initiatives to specific groups, such as the elderly and military service members, to ensure that consumers make informed financial decisions and are aware of various illegal practices in the financial marketplace.

Since its launch, the CFPB has been very busy. Last month, the CFPB published four interim final rules in the Federal Register that establishes its procedures and processes governing investigations, adjudicative hearings/administrative enforcement actions, disclosure of information and records to third parties, and state officials’ notification to the CFPB of enforcement actions they initiate. The rules became effective upon publication, but comments on the rules may be submitted by Sept. 26.

With respect to investigations, the rule states that the assistant director of the CFPB’s Enforcement Division is authorized to issue civil investigative demands for documents, written reports or answers to questions, and oral testimony. The demands may be enforced in federal district court and outlines the rights of witnesses and includes procedures for withholding requested material based on a claim of privilege and filing petitions to modify or set aside an investigative demand.

The rule also governs administrative enforcement proceedings initiated by the CFPB using its authority under Section 1053 of Dodd-Frank to enforce compliance with Dodd-Frank provisions, CFPB rules, or any other federal law or regulation the CFPB is authorized to enforce. The rule is patterned on the administrative proceeding rules followed by the federal banking agencies, Federal Trade Commission, and Securities and Exchange Commission. A hearing officer will be assigned and will have 300 days from when a notice of charges is filed to issue a recommended decision. That decision can then be appealed to the CFPB director by filing a notice with the CFPB’s executive secretary within 10 days after service of the decision. Prior to seeking judicial review, there must be a perfected appeal to the director, which requires that an opening appeal brief be filed within 30 days of the recommended decision being served. The rule currently is not applicable to temporary cease-and-desist orders the CFPB is authorized to issue.

With respect to disclosures, the rule establishes procedures for the CFPB for making disclosures under the Freedom of Information Act and the Privacy Act; for accepting service of summonses and complaints, and of subpoenas, court orders, and other litigation-related demands for information or action, and for making disclosures of information or taking other action in response to such requests or demands; and for making mandatory and discretionary disclosures of confidential information to third parties. The rule treats consumers’ complaints as “confidential information,” but contains a special carve-out whereby, at the discretion of the CFPB, and to the extent permitted by law, the CFPB can disclose confidential consumer complaint information as it deems necessary to investigate, resolve, or otherwise respond to consumer complaints or inquiries concerning financial institutions or consumer financial products and services.

Lastly, the rule sets forth procedures that state Attorneys General and state regulators must follow before initiating a court, administrative, or regulatory proceeding to enforce any provision of Dodd-Frank or CFPB regulations. The rule requires state officials to provide electronic and written notice to the CFPB at least 10 days before initiating a proceeding, with an exception for emergency proceedings, allowing notice to the CFPB to be delayed until up to 48 hours after the proceeding is initiated. Under the rule, CFPB may intervene in a proceeding and, upon intervening, remove a state court proceeding to federal court. It also describes what information must be included in the notice to the CFPB, requires the CFPB not to disclose the information in the notice to third parties, and provides that the notice requirements do not create a private right of action or defense.

State Attorneys General have been working closely with the CFPB since its inception, and as part of his 2010-2011 Presidential Initiative on “America’s Financial Recovery: Protecting Consumers As We Rebuild,” then NAAG President and North Carolina Attorney General Roy Cooper convened a Presidential Initiative Working Group, comprised of assistant attorneys general from North Carolina, Connecticut, Indiana, Iowa, Illinois, Michigan, New York, and Washington. The working group and the CFPB developed a Joint Statement of Principles on Consumer Financial Protection with the purpose of establishing and enhancing a lasting and productive partnership between the CFPB and state Attorneys General [link to Principles: http://www.naag.org/2011-presidential-initiative-summit.php]. Under the Principles, the parties will seek to work together, where appropriate and to the greatest extent possible to develop joint training programs and share information about developments in federal consumer financial law; share information, data, and analysis about conduct and practices in consumer financial products and services markets; engage in regular consultation to identify mutual enforcement priorities; support each other to the fullest extent possible in the enforcement of the consumer financial and consumer protection laws, including joint and coordinated investigations; pursue legal remedies to foster transparency, competition, and fairness in the financial products market across state lines; and develop a consistent and enduring framework to share investigatory information. The Principles also state that both parties will work together to develop protocols and processes for sharing consumer complaint information and create and support technologies to enable data sharing.

For more information, visit the CFPB website at www.consumerfinance.gov.

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