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Consumer Financial Protection Bureau

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Consumer Financial Protection Bureau

(Credit: Scott Barbour / Getty Images)

Definition: The Consumer Financial Protection Bureau was created in 2010 by the Dodd-Frank Wall Street Reform Act. It seeks to protect consumers' financial security by regulating credit, debit and prepaid cards, payday and consumer loans, as well as credit reporting, debt collection, and financial advisory services.

The CFPB wrote user-safety rules for all consumer financial products. More important, it levies fines against lenders who break its rules. It also mandates that loan disputes be allowed to go to court, not just arbitration. It permanently increases FDIC insurance on bank deposits to $250,000.

The CFPB also protects consumers in home real estate transactions. This includes title, escrow and financing businesses affiliated with realtors and homebuilders. It oversees equal credit opportunity and fair housing, and set standards for all mortgage offerings. Although it doesn't ban risky mortgage products, like interest-only loans, it requires some regulations to make them safer, and proof that borrowers understand the risks. The CFPB also makes banks verify applicants' income, credit history and job status. The new Bureau reports to the Treasury Department

What Has the Bureau Done So Far?

President Obama nominated Richard Cordray, the head of the Bureau’s Enforcement Division, to be the Bureau's first Director in July 2011. He was approved by Congress, and took office in January 2102. Until then, the Bureau was managed by Raj Date, a Special Adviser to the Treasury, for day-to-day operations. Even then, the Bureau had taken some first steps towards enforcement of the Dodd-Frank regulations. It launched "Know Before You Owe," which combined two federally required mortgage disclosures into one simple form that makes the costs and risks of the loan clear and allows consumers to comparison shop.

The Bureau is also in charge of implementing the Credit Card Act of 2009. By 2010, the Act had put into place ten important protections for credit card users. These include:

  • No interest rate increases for the first year.
  • The bank can't raise rates on an existing balance unless you've missed two or more payments. When rates do increase, they can't be retro-actively applied to pre-existing balances, or on any balances you've just paid.
  • Payments are applied to the balances with the highest interest rates first.
  • The bank must tell you 45 days before they raise the rate - a month longer than toady's 15-days notice.
  • Banks can't assign fees if they put you more than 50% over your credit limit.
  • Billing statements must be sent 21 days before payment due date. Payments are still on time as long as they a re received by 5:00 pm on the due date, or even the day after a weekend or holiday are on time.
The Bureau has also brought together industry representatives and other experts to make sure the CARD act hasn't hurt the credit card industry. for a conference to review data on how the CARD Act, coupled with the recession and its aftermath, have affected supply, demand, and pricing within the credit card marketplace. It is also seeking public comment on how the CARD Act has affected you. To weigh in, go to The Credit Card Act - Tell Us Your Priorities.

The Bureau has also released reports on:

  • The impact of the CARD Act.
  • How the credit score report you receive might be different from the one that's given to the bank.
  • How banks can improve your knowledge of the exchange rates they use when you do international money transfers.
  • A progress report
The Bureau has also reached out to small, independent bankers from all 50 states. For more information on these activities, go to Learn More About the Bureau.

Role of Elizabeth Warren and the CFPB

The Bureau would not have been created without Harvard Law professor Elizabeth Warren. She had been a champion of consumer rights since 2007, when she realized deregulation helped banks and put consumers at risk. She believes banks should not be allowed to become "too big to fail." She also advocated making loans easy to read and understand. In 2010, President Obama named her the Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB to get the bureau up and running. Unfortunately, she was opposed by the Republican majority in the House, and did not get appointed as the Bureau's official chair. In September 2011, she announced she was running for Senate in Massachusetts.

In 2010, film director Ron Howard supported the bill with two humorous public spots on the internet. One talked about the cost of hidden credit card charges and the other about establishing the Consumer Financial Protection Agency itself. (Article updated January 14, 2012)

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