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Strengthening consumer protection
The Dodd-Frank Act created the Consumer Financial Protection Bureau, a new agency dedicated to ensuring competitive access to financial services and shielding consumers from unfair practices. The Bureau is an independent agency funded by the Federal Reserve.
In 20113, it will assume some of the consumer protection authority now spread across seven federal agencies and will begin examining nonbank financial services providers currently not subject to bank supervision and regulation. The Bureau has broad authority to establish rules and policies to protect consumers, conduct research, provide financial education, and maintain a nationwide consumer complaint response unit.
Creation of the Bureau should benefit consumers by leveling the playing field in oversight and enforcement of consumer protection laws governing all organizations that provide consumer financial services. The Bureau is charged with ensuring clearer disclosure and prohibiting unfair practices. Its goal is to better protect borrowers from abuses and allow them to understand loan terms more fully before taking on debt, including credit cards, student loans, and mortgages. Residential mortgage lending is a particular area of focus, given the scale of poor practices that have developed in recent years. The Dodd-Frank Act creates regulatory standards for underwriting, pricing, servicing, setting up escrow accounts, and carrying out property appraisals for residential mortgages.
Most of the Federal Reserve's existing consumer protection rule-writing authority will transfer to the Bureau. In addition, consumer compliance supervision of all banks with more than $10 billion in assets will transfer from the existing federal banking regulatory agencies to the Bureau.4 Nevertheless, the Federal Reserve will continue to play an important role in consumer protection. It will retain supervisory responsibility for the Community Reinvestment Act and a handful of other consumer protection rules not enumerated in the Dodd-Frank Act, regardless of the size of the institution. In addition, the Federal Reserve will keep consumer compliance supervision responsibility for holding companies, including savings and loan holding companies, beginning in July 2011 (see further discussion below).
The Bureau will work closely with other federal bank regulatory agencies. Monitoring compliance with consumer protection rules is a critical part of the overall supervision of financial institutions. Supervisors responsible for financial institution safety and soundness will continue to take consumer compliance into account. In addition, federal bank regulatory agencies will still be responsible for determining whether certain institutions are complying with existing consumer regulations and new rules written by the Bureau.
3. Planned implementation is July 21, 2011 (could be extended to January 21, 2012).
4. For the Twelfth District, this covers only three of over forty state chartered banks that are members of the Federal Reserve System.