Alexander Foxx, Blog Editor, University of Cincinnati Law Review
Introduction
Few federal agencies have created as much media coverage as that of the Consumer Financial Protection Bureau (CFPB). For example, the CFPB has recently generated press around a payday lending rule and an arbitration rule. These events merit a consideration of the CFPB’s purpose and if the agency is adhering to that purpose. If the CFPB is appropriately carrying out its legally mandated purpose, there should be little cause for concern over its recent actions. However, if the CFPB is overreaching its purpose or not properly fulfilling it, cause for concern is appropriate. This article maintains that the CFPB is appropriately and adequately carrying out its legally mandated purpose.
First, this article examines the legal basis of the CFPB by looking at the founding legislation of the agency and the policy behind that legislation. Second, this article exams the CFPB’s actions in light of the agency’s purpose. Finally, this article concludes that the CFPB is adequately and appropriately carrying out the purpose for which it was established.
CFPB Founding Legislation
The CFPB was founded by the Consumer Financial Protection Act of 2010 (the Act), which is contained in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).[2] Dodd-Frank was passed as a response to the 2007 recession.[3] Specifically, the CFPB was established to ensure “that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”[4] The Act then proceeds to delineate this purpose into five objectives.[5] These objectives are to ensure that:
- “consumers are provided with timely and understandable information to make responsible decisions about financial transactions;
- consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination;
- outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens;
- Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and
- markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”[6]
However, the Act does not leave a large window of interpretation for these objectives—it narrows the functions of the CFPB in achieving these objectives.[7] The functions of the CFPB are defined as follows:
- “conducting financial education programs;
- collecting, investigating, and responding to consumer complaints;
- collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets;
- subject to [other provisions of the Act], supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law;
- issuing rules, orders, and guidance implementing Federal consumer financial law; and
- performing such support activities as may be necessary or useful to facilitate the other functions of the Bureau.”[8]
Taken together, the congressionally-defined objectives and functions of the CFPB provide guidance concerning the appropriateness of the agency’s actions.
The agency appears cognizant of its limitation by the Act. In its final rules the agency explicitly ties the rule to the objective or function section of Dodd-Frank and to a section which explicitly authorizes an action.[9] Specifically, in a recent rule on mortgages, the CFPB noted that Section 1032 of the Act granted the agency broad powers in regulating financial institutions and also recited the text of the Act.[10] This citation and reference by the CFPB indicates an acute awareness of its congressional mandate. By contrast, many other agencies do not appear to explicitly sight their legal authority.[11]
The CFPB Adheres to Congressional Authority
The CFPB appropriately acts in accordance with its congressionally established legal authority. Dodd-Frank was passed, in part, to prevent the abuse of the financial system that led to the 2007-2008 recession. This abuse extended to financial institution abuse of consumers. Wishing to prevent such future abuse, Dodd-Frank established the CFPB. As long as the rules issued by CFPB aim at protecting consumers, the agency is acting within its congressional mandate.
The caption of Dodd-Frank supports a broad reading of the CFPB’s legal authority. The caption states that the goal of Dodd-Frank is to “promote the financial stability of the United States.”[12] This caption alone underpins the actions of the CFPB. For example, regulating payday lenders and encouraging consumer diligence through litigation–both tenants of recent rules proposed by the CFPB—fall in the category of promoting financial stability.[13]
The text of the Act explicitly confirms the broad powers granted to the CFPB. Notably, the fifth objective of the CFPB, to ensure that “markets…operate transparently and efficiently,” allows for nearly unchecked regulation by the CFPB.[14] Efficient markets can only be gained when information transactional costs between parties are equal or nearly equal. In achieving this goal, the CFPB could issue a broad variety or rules only tangentially related to protecting to consumers. Appropriately, the agency has demonstrated laudable restraint in regulation of consumer financial institutions. For example, regulating payday loans not only rebalances transactional costs in favor of consumers, it could, arguably, be viewed as regulation of an unconscionable industry. Therefore, this and similar regulatory action is well within the legal power of the CFPB, as granted by Dodd-Frank.
Even if it is not immediately apparent that the CFPB is acting within its legal authority—such as the regulation of mortgages for consumers—the agency appears to go to pains to explicitly identify its mandate. Many of the rules made available on the agency’s public website dedicate over a page of text demonstrating the legal authority underpinning the rule.[15] This section is clearly and unambiguously titled “Legal Authority.”[16] Such explicit indication of legal authority demonstrates the CFPB’s cognizance of its politically tenuous position and reveals a willingness of the agency to stay far removed from any questions regarding the legal validity of its actions.
Conclusion
The CFPB derives was established by Dodd-Frank, from which it derives its legal authority. The agency’s actions fall within the legal authority. Further, the agency takes explicit steps to stay within its legal authority and indicates this compliance in the verbiage of its rules. This can especially be seen in the CFPB’s recent Payday lending rule. The rule ties to (1) a function of the agency and (2) a more specific authorizing rule in Dodd-Frank.[17] Further, this rule regulates a consumer facing industry, demonstrating the CFPB’s restriction of its actions to areas allowed to it by Dodd-Frank—namely, it contains itself to regulating consumer facing industries.[18] Therefore, the CFPB is appropriately and adequately carrying out its legally mandated purpose.
[1] Reference Wovrosh and Foxx Articles
[2] 111 P.L. 203, 124 Stat. 1376, Title X, Sec. 1001..
[3] See 111 P.L. 203, 124 Stat. 1376.
[4] 111 P.L. 203, 124 Stat. 1376, Title X, Subtitle B, Sec. 1021(a)..
[5] 111 P.L. 203, 124 Stat. 1376, Title X, Subtitle B, Sec. 1021(b)
[6] Id.
[7] 111 P.L. 203, 124 Stat. 1376, Title X, Subtitle B, Sec. 1021(c)
[8] Id.
[9] For example, Section 1022(c)(1) specifically authorizes the agency to monitor risks to consumers. This section, or one similar, may be cited in addition to a function or objective section.
[10] Id.
[11] Environmental Protection Agency, https://www.gpo.gov/fdsys/pkg/FR-2011-01-24/pdf/2011-906.pdf, 2, (last accessed November 8, 2017).
[12] 111 P.L. 203, 124 Stat. 1376.
[13] New York Times, https://www.nytimes.com/2017/10/24/business/senate-vote-wall-street-regulation.html?_r=0, (last accessed November 8, 2017); New York Times, https://www.nytimes.com/2017/10/05/business/payday-loans-cfpb.html (last accessed November 8, 2017).
[14] 111 P.L. 203, 124 Stat. 1376, Title X, Subtitle B, Sec. 1021(b)
[15] E.g., CFPB, https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201710_cfpb_amendments-to-2016-Servicing-Rule_interim-final-rule.pdf , 7, (last accessed November 7, 2017).
[16] Id.
[17] CFPB, http://files.consumerfinance.gov/f/documents/201710_cfpb_final-rule_payday-loans-rule.pdf, 179 and 181, (last accessed November 13, 2017).
[18] CFPB, http://files.consumerfinance.gov/f/documents/201710_cfpb_final-rule_payday-loans-rule.pdf, 1, (last accessed November 13, 2017). Another example can be found in the CFPB’s recently repealed arbitration rule. (Federal Register, https://www.federalregister.gov/documents/2017/07/19/2017-14225/arbitration-agreements.).
