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Wednesday, September 12, 2012

A Brief Overview of Actions Taken by the Consumer Financial Protection Bureau (CFPB) in Its First Year

Sean M. Hoskins
Analyst in Financial Economics

The Consumer Financial Protection Bureau (CFPB), which formally started operating on July 21, 2011,1 was established by Title X of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (P.L. 111-203; the Dodd-Frank Act). The creation of the CFPB consolidates many consumer financial protection responsibilities into one agency.2 The Dodd-Frank Act states that the purpose of the CFPB is to implement and enforce federal consumer financial laws while ensuring that consumers can access financial products and services.3 The CFPB is also instructed to ensure that the markets for consumer financial services and products are fair, transparent, and competitive.4 To fulfill its mandate, the CFPB can issue rules, examine certain institutions, and enforce consumer protection laws and regulations.

Congress is currently engaged in oversight of the CFPB, but not its funding. The Dodd-Frank Act established that the CFPB is to be headed by a director, appointed by the President with the advice and consent of the Senate, who shall serve a five-year term. The current director, Richard Cordray, was installed by President Obama via recess appointment on January 4, 2012.5 The bureau is administratively situated within the Federal Reserve System (the Fed). The Federal Reserve Board, however, cannot veto a rule issued by the CFPB, but the Financial Stability Oversight Council (FSOC), with the vote of two-thirds of its members, can set aside a CFPB proposed rule.6 The CFPB is funded through the earnings of the Fed, which is not subject to congressional appropriation. The Dodd-Frank Act caps the CFPB’s funding at 11% of the Fed’s operating expense for FY2011 (approximately $547.8 million7) and at 12% thereafter. If the director determines that additional funding is needed, the Dodd-Frank Act provides authorization for an additional $200 million in appropriations per year through FY2014. As of June 30, 2012, the CFPB had spent $247 million in FY20128 and had a staff of 889.9

The CFPB has the authority to enforce many of the financial consumer laws,10 primarily for large depository institutions with assets of more than $10 billion as well as some nonbank institutions.11 However, some consumer protection responsibilities were not given to the bureau. The CFPB is

not the primary consumer protection regulator of depositories with less than $10 billion in assets. The prudential regulators that regulate the smaller institutions for safety and soundness will continue to regulate them for consumer protection.12 The Dodd-Frank Act also provides some industries with exemptions from CFPB regulation. The CFPB will not oversee automobile dealers, merchants, retailers, or sellers of nonfinancial goods and services, real estate brokers, real estate agents, sellers of manufactured and mobile homes, income tax preparers, insurance companies, or accountants.13

Multiple proposals have been introduced in the 112th Congress to alter the structure of the CFPB. For example,

  • H.R. 1315, which passed the House in July 2011, and S. 737 would establish a five-person commission to lead the bureau in place of a single director. 
  • H.R. 1355 would place the CFPB in the Department of the Treasury, modifying its current status as an independent bureau attached to the Fed. 
  • H.R. 1640 would repeal the requirement of an annual transfer to the CFPB of funds from the Fed and would subject the CFPB to the regular authorization, budget, and appropriations process.

Date of Report: August 29, 2012
Number of Pages: 6
Order Number: R42615
Price: $19.95

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