Why does the Consumer Financial Protection Bureau Matter?

The Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau, a new and powerful federal bureaucracy with a mandate to enhance consumer financial protection under a host of new and existing consumer protection laws.  According to the current schedule, the CFPB will absorb a significant portion the consumer protection functions (research, rulemaking, guidance, supervision, examination and enforcement) of the Federal Reserve, the FDIC, the FTC, the NCUA, the OCC, the OTS and HUD as of July 21, 2011.   

Depending on how the mandate is implemented, it could result in a shift from a disclosure regime towards a rules-based regime - a change that would invite both federal and state regulators to take a fresh look at some long-standing interpretations of separate but related consumer protection laws.  As such, the methods by which fractionals, timeshares and travel club memberships are sold and financed are potentially subject to some significant changes.   

Hospitality Lawg Updates

Given this potential, the Hospitality Lawg will be tracking CFPB developments and report on them as appropriate.  In early January, we reported on some initial organization and staffing developments at the CFPB.  This post focuses on developments from February.

• Big Bureau, But Leader Still Undetermined

President Obama's budget contemplates over 1200 hires at the CFPB.  But with only a little more than 5 months before the July 21 launch date, President Obama has not nominated a director for the CFPB.  Without a director, Sheryl Harris at the Plain Dealer reports that the authority of the CFPB may be significantly limited.  And Brady Denis at the Washington Post reports that the US Chamber of Commerce is taking steps to confirm that limit on the CFPB’s authority.

• Consumer Outreach 

The CFPB launched its website in early February.  The site's focus on social media backs up Elizabeth Warren's stated goal of hearing from consumers as the agency is under development.   On the not-so-welcoming side, the site features a very large badge and the phrase "Welcome to the Bureau."   The site states that:

The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.

• Warning Shots

The site also refers to the CFPB as a "neighborhood cop on a beat."  Peggy Twohig, the "Non-Bank Supervision Team Lead," described her unit's focus as follows:

Many companies other than banks provide consumer financial products and services. These nonbank companies include mortgage lenders, mortgage servicers, student lenders, payday lenders, credit bureaus, and debt collectors. Nonbank financial companies can have a huge impact on consumers, but, unlike banks, they have not been subject to regular Federal reviews to make sure they play by the rules. My team is planning a new Federal supervision program to oversee these companies. When banks and nonbank companies are subject to similar Federal oversight, consumers across the entire marketplace will be better protected

In Richard Cordray's first interview since arriving to set up the CFPB's enforcement operations, Jean Eaglesham of the Wall Street Journal reports that Cordray suggested he will use the same aggressive approach that he was known for in his previous job as Ohio's attorney general. Last year, the 51-year-old Mr. Cordray described the foreclosure practices used by companies now under a nationwide investigation as "a business model built on fraud."