The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law by President Barack Obama in the spring of 2010. The Dodd-Frank Act was a large piece of legislation that was passed in the wake of the financial fallout and the Great Recession of 2007–08. The Dodd-Frank Act has many components and was the launching pad for a parade of new regulations, which will take several more years to create and implement.
Many aspects of the Dodd-Frank Act remain highly controversial, but perhaps none more than the newly created Consumer Financial Protection Bureau (CFPB). The CFPB's existence, structure, and enforcement actions have been fodder for talk-show hosts, business groups, consumer advocates, and politicians—including in the recent US presidential election process. And the impacts of the CFPB are frequently discussed in major news sources. This article will focus on providing some background on the following.
The CFPB was created with a mandate to supervise consumer financial services companies, as well as large depository institutions and their affiliates. Two notable characteristics of the CFPB make it very different from other regulatory functions.
The CFPB was given the following three powers.
Although the CFPB has the ability to supervise consumer financial services companies and large depository institutions, there are two critical exemptions to its authority worth mentioning.
First, the "business of insurance" is specifically excluded from the list of financial products and services subject to the CFPB's jurisdiction, as well as enforcing any provision of DFA against any person regulated by a state insurance regulator. This carve-out continued to maintain fidelity to the state-based regulatory structure for the business of insurance that dates back to the McCarran-Ferguson Act of 1945—where Congress specifically delegated the regulation of the business of insurance to the states.
Second, automobile dealerships are exempt as outlined in section 1029, which states:
The Bureau may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles.
In February 2016, the CFPB identified 9 priorities that it will focus its energy on for the next 2 years. Those include the following.
CFPB enforcement actions have focused a great deal of energy on the marketing and sales practices of products and services. For example, in 2013–15, there were no less than four enforcement actions against lending institutions (banks and nonbank automobile finance lenders) regarding the dealer markup practices on the retail installment loan. In these examples, these lending institutions were accused of having a disproportionate amount of individuals in a protected class that received a higher "dealer markup" rate.
The CFPB has powerful and broad authority over many aspects of the financial and banking industry. The "business of insurance" is specifically carved out from the CFPB's scope, deferring the regulation of this business to the state regulatory regime. The CFPB has had a controversial start, with many controversies yet to be untangled. And, with a new administration taking shape in Washington, DC, there are many questions about how the Trump administration will impact the CFPB's authority. In his confirmation hearings, Secretary of Treasury Steve Mnuchin stated it's not feasible to eliminate the CFPB, but he did support transitioning the bureau to a commission structure, similar to the SEC.
Although much has yet to be seen, it is highly likely that the Trump administration will attempt to curb certain practices and could support legislation to arrest some of the bureau's authority and structure. But one thing is clear, the CFPB will remain a factor in consumer enforcement. With that in mind, it's important to recognize where the CFPB's authority begins and ends when compared to state insurance departments.
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