What is the CFPB?

CFPB_2tone_Horiz_RGB“CFPB” stands for the Consumer Financial Protection Bureau, which is an independent agency of the U.S. government.  The CFPB is responsible for protecting consumers from the excesses of the financial sector of the U.S. economy.  It regulates institutions such as banks, credit unions, mortgage servicing firms, debt collectors, and other financial companies.

The CFPB was created in response to the “great recession” and financial crisis that struck the country in 2007-2009.  It was authorized by the Dodd-Frank Act, which was passed in 2010.  The Dodd-Frank Act was also a response to the great recession.

During the mid-portion of the 20th century, most Americans did not carry a lot of debt.  However, the economic malaise of the 1970’s (with it’s rising interest rates and stagnant wages) pushed many households into debt.  Also during that time (1970’s and 1980’s) regulations and laws restricting credit were loosened and individuals and households had greater access to credit and financial products.

This may sound great, but there was a downside to these new opportunities.  By the 2000s this new environment had evolved into one of rapid growth in irresponsible lending and sketchy business practices, such as predator lending.  In short, many lenders took advantage of the lax regulatory atmosphere and took advantage of less sophisticated consumers.

All of this culminated in the financial crisis and great recession of 2007 – 2009.  By this time, many Americans were in loans (especially mortgages) they did not understand. Although some people knew better and just overextended themselves, many people were mislead into complicated loans they did not understand.  Wall Street further compounded this problems by packaging these loans into securities, and then borrowed way too much money to trade them.  So, you had traders and investors all over the world borrowing money to trade securities that had dubious value.  The result was the financial meltdown we experienced from 2007 – 2009.

In 2009, President Obama proposed to remedy the issues that brought on the financial crisis and great recession by establishing a regulatory body that would concentrate on consumers and the financial issues they face.  Before this time, the major financial regulatory bodies concentrated on major financial institutions such as banks and brokerage houses.  In 2010, Congress passed and President Obama signed the “Dodd-Frank Wall Street Reform and Consumer Protection Act.”  This law created the CFPB and consolidated most Federal consumer financial protection authority in one place.

The consumer bureau is focused on one goal: watching out for American consumers in the market for consumer financial products and services.  The CFPB works to educate consumers, enforce regulations and supervise financial institutions, and studies financial trends in order to better protect consumers.  In conclusion, the CFPB works to ensure consumers have the needed information to make informed decision about their finances.

If you want more information on the CFPB and its mission, go to http://www.consumerfinance.gov/.



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