One year ago this week, a fledgling federal agency opened its
doors for business amid a cloud of uncertainty.
The new Consumer Financial Protection Bureau (CFPB) had no
official director. It was under attack from Republicans in Congress
who wanted to cripple it before it got out of the gate. And it was
under pressure to show results in its primary mission: rescuing
consumers from financial harm at the hands of big banks and
One year later, consumer advocates are beaming about their new
champion of everyday Americans' pocketbooks. Banks and other
lenders are watching anxiously to see what this new and unknown
entity will do next.
Controversy continues to shadow the agency, however, which grew
out of the massive Wall Street Reform law. The agency is still
battling critics in Congress. Its director, Richard Cordray, took
office six months ago by virtue of a controversial recess
appointment from President Obama. A federal lawsuit has been filed
challenging his right to have the job and other legal battles may
not be far behind.
Still, Cordray is upbeat about his accomplishments after year
"In the year since the CFPB opened its doors, we have focused on
making the financial services marketplace work better for
consumers," he said in a statement released by his office. "We're
putting in place strong rules of the road to fix the broken
mortgage market -- a leading cause of the financial crisis and a
key part of our economic recovery."
He added: "We're also working to cut down on fine print so
consumers know before they owe on mortgages, student loans and
Year one initiatives
Among the initiatives launched since July 21, 2011:
- Releasing a prototype of a simplified, two-page credit card
agreement that is being tested by a major federal credit
- Simplifying mortgage disclosures and forms to make it clearer
to buyers what they are getting before they close on real estate
- Creating two special offices focused on protecting military
families and the elderly -- two groups often targeted by scammers
and predatory lenders -- from abuse and deception.
- Publishing rules to identify larger participants in nonbank
financial services markets, such as debt collection, credit
reporting, payday lending and mortgage lending. Final rules for
supervising large credit reporting bureaus were released July 16,
- Launching a website and complaint system to collect consumer
feedback on their experiences with financial products such as
credit cards, mortgages and student and auto loans.
- Starting a public complaint database accessible to anyone
with access to the Internet. The database provides limited
information about the nature of complaints and the banking
industry has said it presents a skewed and limited view of
complaints compared to the millions of active accounts in the
A year after opening, the agency is still staffing up. So far,
it has hired nearly 900 of the nearly 1,300 employees it expects to
staff its headquarters in Washington, D.C., plus three satellite
offices in Chicago, San Francisco and New York. It has a $356
million budget, projected to grow to $447 million in 2013.
Consumers are better off, groups say
Consumer groups are praising the agency's first year as a milestone
"The agency has changed the conversation within the industry
from, 'Have we complied with the letter of the law?' and 'Can we
find a loophole?' to 'Is this product unfair, deceptive or
abusive?' " says Lauren Saunders, managing attorney for the
National Consumer Law Center, a consumer advocacy legal group with
offices in Boston and Washington, D.C.
A scientific poll commissioned by a coalition of consumer groups
asked 803 likely voters what they felt about the CFPB and some of
its initiatives. Two-thirds (66 percent) agreed that the agency was
needed. More than nine out of 10 (92 percent) favored requiring
credit card companies and other lenders to make borrowing terms,
rates and fees clearer -- a major part of the CFPB's mission.
"The CFPB is demystifying the financial markets for consumers,"
says Pamela Banks, senior policy counsel for Consumers Union, the
advocacy arm of Consumer Reports magazine.
"The CFPB has given consumers a voice," Banks adds. "It has
empowered them with respect to being able to make informed
decisions about their financial affairs."
Bankers say it's too soon to judge the impact the bureau has had
on its industry. "It remains to be seen," says Richard Riese,
senior vice president for regulatory compliance for the American
Bankers Association (ABA) trade group. "It's only 1 year old. It's
done some things that make people go, 'Ooh and ahh' -- like any
Cordray and other CFPB staffers have appeared to testify before
congressional committees more than a dozen times in the past year.
The agency has also hosted town hall meetings around the country.
The most visible activity has been in churning out press releases
outlining initiatives to gather comments and feedback on proposed
rules to oversee things like credit reporting bureaus, debt
collectors, money transfer services and the like.
Bankers: Too early to judge
The ABA's Riese says these are just first steps.
"They have shown an appetite for information, but they've also
shown in some of their aspirations they may have underestimated the
challenges in some of this," Riese says. "They are coming to the
realization that it is even more complex than they thought in the
He added: "It will take time to follow through on those things
and evaluate what's appropriate."
Tinkering with one aspect of a rule or regulation often leads to
unintended consequences on another level, Riese says, adding, the
CFPB's staff was enthusiastic to make changes but saw that, "Oops.
If I touch this, look at what happens over there.' The fixes aren't
so simple." He cited the simplified mortgage statements as an
example. The timetable for final release was initially set for the
summer of 2012, but has been pushed back to the end of the
"It has a pretty good handle on its press releases and puts
things out and get press and has been jumping around on a lot of
issues," Riese notes. "The real work of the bureau -- the mission
of oversight that has the markets functioning for the benefit of
consumers to be good marketplaces -- is still the work ahead of
Even before it opened for business, the CFPB was already flexing
its muscle. Then acting director Elizabeth Warren, a consumer
advocate and now a U.S. Senate candidate, met with CEOs of the
major banks. Her message: Times have changed, make credit card
contracts easier to read and take the "gotcha" out of financial
products. Many banks took note and started reviewing their
practices. Some rewrote their credit card agreements in
anticipation of regulations.
A survey of in-house attorneys and compliance executives for
major financial services companies showed many are flustered by the
uncertainty surrounding what the agency might do, and many have
taken precautionary action (see chart). Many see the CFPB as an
additional layer of regulation that duplicates many of the things
the Federal Trade Commission continues to do.
Jeffrey Taft, a partner at the Mayer Brown legal group, which
conducted the survey, says some companies began to focus more
attention on how they handle customer complaints, recognizing that
unanswered complaints become the basis for class-action lawsuits
and more regulation.
"If you can nip a customer complaint in the bud, it stops them
from going to [the Internet]," Taft says.
Many watching and waiting
Around the financial services sector, all eyes are on the CFPB.
Industries never subjected to the kind of close scrutiny given to
banks by examiners have been bracing for their first reviews. Those
nonbanks include businesses such as payday lenders, debt
collectors, debt settlement companies, credit reporting agencies
and mortgage brokers.
Debt collectors are still in the early stages of oversight. The
CFPB is gathering comments on the criteria for selecting which
collection agencies will fall under its umbrella of regulation.
That industry, like others, is watching and waiting for its turn in
"Our antenna has been up. We've been following it very closely,"
says Mark Schiffman, a spokesman for ACA International, a debt
collection trade organization. "We are able to see what they are
doing with other industries."
Schiffman says his industry is working with the CFPB, exchanging
information and inviting regulators to its annual convention. "We
don't necessarily agree with everything, but we are certainly
working on helping to foster a good relationship. They've called us
on a number of occasions to ask questions, which is great."
The big consumer cop on the street collared its first offender
on July 18, 2012, just three days shy of its anniversary. Capital
One Bank was hit with $210 million in penalties and restitution for
high-pressure sales tactics and deceptive marketing of its payment
protection and credit monitoring plans.
Many were anticipating that first penalty action, says banking
industry attorney Taft, from the financial services industry legal
Banks and nonbanks were wondering which type of business would
be targeted first -- or second. "They are wondering, 'Am I going to
be next? What should I be worried about? Is my industry going to be
the focus?'" says Taft.
Before the Capital One announcement, Taft said the CFPB would
likely choose a company with blatantly deceptive or abusive
practices as its first case. "They'll go after the low-hanging
fruit," he said, adding, "one that will settle quickly" without
As a major national bank, Capital One clearly falls under the
CFPB's jurisdiction and authority. That question may be less clear
with nonbanks, which may fight enforcement efforts in the courts.
Any nonbank companies could file suit challenging the agency's
authority to take action against them on the grounds that Cordray's
appointment may have been unconstitutional. A Texas bank filed suit
in federal court June 22, 2012, challenging the appointment and the
bureau's "unbounded power."
Banking and consumer groups have both noted that the agency has
moved at a slower pace than some expected. Ironing out the best way
to simplify the fine print of a credit card agreement, for
instance, proved more time-consuming than some thought. The agency
released a prototype of a two-page agreement soon after opening for
business. At the same time, the CFPB was hammering out the details
of its mortgage reform initiative, adding offices to focus on the
military and the elderly financial abuse while continuing to hire
and train new staff members.
"The biggest overall frustration is how much work there is to do
and the amount of time things take, but that is natural given the
CFPB's mandate to hear from all sides, collect data, and be
thoughtful and careful," says Saunders from the consumer law
Banking industry representatives aren't all critical of the new
watchdog. Some acknowledge the positive changes the agency has
generated, namely educating the public about mortgages and credit
cards through the "Know Before You Owe"educational campaign.
"At the end of the day, a lot of institutions believe an
educated customer is a good customer. The more we can encourage
people to shop around and determine the best deal they can get, the
better," Taft says. "It's going to help those in the industry that
are providing the best service."