What Is the Consumer Financial Protection Bureau?

As of February 14, 2017, the Trump administration has indicated its intention to eliminate the CFPB as part of the unwinding of the Dodd-Frank Act. Watch for updates on this developing situation.

Few problems are more frustrating than being unable to resolve a dispute with a large financial institution. The Consumer Financial Protection Bureau (CFPB) is a government agency that helps consumers do just that. Born out of a necessity to combat the abuses of the 2008 recession, the CFPB “…makes sure banks, lenders, and other financial companies treat you fairly…” by instituting rules prohibiting unfair lending and collection practices and maintaining a complaint filing system that is accessible to all.

Congress Created the CFPB to Protect Consumers

The job losses, foreclosures, and bankruptcies brought about by the 2008 recession devastated the economy and financially hobbled many citizens. Adding insult to injury, taxpayers were forced to bail out the banking industry—a task suffering citizens found particularly distasteful given that by all accounts, the financial sector's unethical and fiscally unsound decisions were the root cause of the crisis.

Congress, recognizing the need to protect people from another collapse, passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010.

As part of its reforms, the Act established the Consumer Financial Protection Bureau (CFPB) to give citizens a voice against the banking and finance industry. It also protects individuals and families from unfair, deceptive, and abusive financial practices. (Learn more by reading What Is the Dodd-Frank Act?)

How Does the CFPB Protect Consumers?

The CFPB oversees and regulates consumer financial products and provides individuals a place to lodge complaints. You’ll find examples of significant consumer benefits below.

CFPB Rules Help Homeowners Stay in Their Homes

The Act mandated the CFPB to take strong action to protect homeowners. The CFPB complied. Not only did the CFPB institute rules requiring transparency in lending, but it took steps to slow down the foreclosure process, as well.

Under rules put in place in 2014, a lender or servicer cannot start a foreclosure proceeding until a homeowner is at least 120 days in default (behind) on a mortgage. During the waiting period, the bank must consider a homeowner’s request for a foreclosure alternative, such as a loan modification. The filing of a completed application stays the foreclosure until the bank completes the evaluation.

The waiting period is a lifesaver for many owners. It provides time to recover financially after suffering from an illness, job loss, or similar downturn. The law is especially critical in states that allow a lender to sell a home at auction as soon as 30 days after a default.

The CFPB’s Online Complaint Program

Anyone who has tried to solve a problem with a large company knows how frustrating it can be—especially if you’re unable to come to a reasonable resolution. Now, a consumer can file a complaint on the CFPB website regarding any loan or financial service, including issues involving a:

  • mortgage
  • student loan
  • vehicle loan
  • payday loan
  • bank account or service
  • credit card or prepaid card
  • credit report or debt collection, or
  • money transfer or virtual currency.

The CFPB will work as an intermediary on behalf of the consumer by not only submitting the complaint to the company but by following up to resolve the problem, as well.

The Trump Administration Seeks to Abolish the CFPB

In its February 3, 2017, executive order, the Trump administration signaled its intent to make good on the campaign promise to unwind the Dodd-Frank Act and increase the availability of credit.

One of the causes of the financial collapse was the failure of banks to keep enough money on hand to weather a financial downturn. The Dodd-Frank Act tightened credit availability by requiring banks to maintain a higher percentage of capital. Repealing capital requirements instituted under Dodd-Frank would allow lenders to dip into reserves.

Of course, what remains unsaid is that the cost of this action would be to subject taxpayers to the risk of another banking bailout. Further, if the Trump administration unwinds the Dodd-Frank Act, individuals would lose valuable protections under the CFPB and be subjected to predatory practices once again.

Learn more by reading Trump Administration Executive Order Targets the Dodd-Frank Act.

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