Establishment of the Bureau of Consumer Financial Protection (§§ 1011, 1012, 1021, 1025, 1026, 1029, & 1031)

The portion of the legislation entitled the Consumer Financial Protection Act of 2010 (CFPA) establishes the Bureau of Consumer Financial Protection (BCFP) within the Federal Reserve to regulate consumer financial products and services. The BCFP, which will consolidate and strengthen consumer protection responsibilities currently managed by the Federal Reserve, the OCC, the OTS, the FDIC, the NCUA, the FTC, and HUD, will have extensive authority to regulate and enforce substantive standards for any person that engages in the offer or sale of a financial product or service to any consumer.

The BCFP will be led by a presidentially appointed, Senate-confirmed director. Despite being formally an entity within the Federal Reserve, the BCFP will enjoy significant operational and policymaking independence. For example, the Federal Reserve Board is prohibited from intervening in the issuance of any BCFP order, rule, examination, or enforcement action. The BCFP will have its own dedicated, non-appropriated funding supply in the form of mandatory annual transfers from the Federal Reserve’s earnings.

The BCFP’s central mission will be to implement and enforce relevant federal laws to ensure that markets for consumer financial products and services are “fair, transparent, and competitive.” The BCFP is specifically tasked with protecting consumers from discrimination and “unfair, deceptive, or abusive acts and practices.”

The BCFP will have supervisory, rulemaking, and enforcement authority over “covered persons” for all consumer finance activities except insurance, as well as CFTC- and SEC-regulated services. This generally will include any person that offers or provides a consumer financial product or service. There are two important points here. First, nonbank entities will be regulated in the same manner and by the same regulator as their bank counterparts engaging in the same activities (i.e., mortgage companies and consumer finance companies). Second, the BCFP is the first agency dedicated solely to consumer protection that will supervise and examine these entities.

The BCFP will have limited examination authority over banks, thrifts, and credit unions with $10 billion or less in assets because the federal banking agencies will be responsible for examining and enforcing these institutions’ compliance with federal consumer financial laws. This exclusion largely reflects a compromise that allows smaller financial institutions to have a single supervisor.

A number of entities will be exempt from the BCFP’s authority, including any entity regulated by a state insurance regulator, the SEC, a state securities commission, the CFTC, or the Farm Credit Administration. In addition, while subject to relevant BCFP regulations, certain retailers, merchants, and other sellers of nonfinancial services are exempt from BCFP supervision and enforcement. Automobile dealers similarly are exempt.