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A Closer Look at the New Financial Product Regulator

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorizes the creation of a new agency, the Consumer Financial Protection Agency (CFPA), charged with regulating the ways in which financial products and services are offered or sold for consumer purposes (i.e., personal, family, or household purposes).  This broad mandate gives the new agency some sweeping powers, and consolidates and transfers some powers from other regulators to the CFPA.  The CFPA has been granted the authority to regulate and enforce standards for anyone who engages in the offer or sale to any consumer of a financial product or service, including:

  • Extending credit and servicing loans, including acquiring, purchasing, selling, brokering or other extensions of credit;
  • Extending or brokering leases of personal or real property that are the functional equivalents of purchase finance arrangements;
  • Providing real estate settlement services;
  • Engaging in deposit-taking activities, transmitting or exchanging funds;
  • Selling, providing or issuing stored-value or payment instruments;
  • Providing check cashing, check collection or check guaranty services;
  • Providing financial advisory services (other than those relating to securities regulated by the SEC);
  • Collecting, analyzing, monitoring or providing consumer report information or other account information (including credit history of consumers);
  • Collecting debt relating to any consumer financial product or service; and
  • Such other financial product or service as may be defined by the CFPA.

The objective of the CFPA is to exercise its authority with the aim of ensuring that, with respect to consumer financial products and services:

  • 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  • Outdated, unnecessary or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens;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 in order to promote fair competition; and
  • Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

Though it will be an independent executive agency, the CFPA will be organized within and funded by the Federal Reserve System (the "Federal Reserve").  The CFPA's Director will be appointed by the President and confirmed by the Senate, and will serve for a five year term, but can be removed by the President at his or her pleasure.  The Dodd-Frank Act requires the CFPA's Director to report directly to the House and Senate semi-annually. 

For two perspectives on the new agency, with some thoughts about the CFPA's potential effect going forward see:

U.S. Financial Reform: Creation of the Consumer Financial Protection Bureau, by Duane Morris, LLP

Financial Regulatory Reform - Bureau of Consumer Financial Protection, by Sonnenschein, Nath & Rosental, LLP