Consumer Financial Protection Bureau

Key Takeaways

• The Consumer Financial Protection Bureau was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act and took up its transferred authority on July 21, 2011, the date the statute calls the designated transfer date.
• On the designated transfer date the consumer financial protection functions of seven federal agencies moved to the Bureau, which is why mortgage rulemaking that once sat with the Federal Reserve Board and HUD now sits in one place.
• The Bureau writes and enforces Regulation Z under the Truth in Lending Act and Regulation X under the Real Estate Settlement Procedures Act, the pair that carries the TRID disclosure rules.
• The Bureau's tools are rulemaking, supervision of companies, enforcement actions, and a consumer complaint system that forwards complaints to companies for a response.

What It Means

The Consumer Financial Protection Bureau, usually shortened to the CFPB, is the federal agency that writes and enforces the consumer rules a mortgage borrower runs into. Congress created it in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and it took up its transferred authority on July 21, 2011, the designated transfer date.

That date carries more weight than it looks. Before it, consumer mortgage rulemaking was scattered across the federal government. The Federal Reserve Board wrote Regulation Z under the Truth in Lending Act, HUD administered the Real Estate Settlement Procedures Act, and other agencies held the remaining pieces. On the designated transfer date the consumer financial protection functions of seven federal agencies transferred to the Bureau. That is how a single agency came to hold both halves of the mortgage disclosure system, and it is why the Bureau, rather than anyone else, was able to merge those disclosures into Trid.

The Bureau describes its own work as rooting out unfair, deceptive, or abusive acts or practices by writing rules, supervising companies, and enforcing the law. It also monitors markets for new risks and takes consumer complaints, forwarding them to companies for a response.

How It Works in Washington

A real estate broker does not answer to the Bureau, and no Bureau rule licenses one. The connection runs through the loan. Every financed sale a broker touches carries the Bureau's disclosure machinery: Regulation Z under the Truth in Lending Act, Regulation X under the Real Estate Settlement Procedures Act, and the Loan Estimate and Closing Disclosure deadlines that decide when a client is allowed to sign.

In Washington a second regulator sits alongside the Bureau on the lending side. The Mortgage Broker Practices Act, chapter 19.146 RCW, is administered by the state Department of Financial Institutions; RCW 19.146.010 defines the director as the director of financial institutions and the department as the state department of financial institutions. RCW 19.146.0201 then lists prohibited practices for mortgage brokers and loan originators that read like a state twin of the federal rules. It bars employing any scheme, device, or artifice to defraud or mislead borrowers or lenders, engaging in unfair or deceptive practices, advertising rates or terms that are not in fact available, advertising an interest rate without also disclosing the annual percentage rate, and failing to make required disclosures. One advertisement can therefore produce a federal enforcement problem and a Washington licensing problem under the Mortgage Broker Practices Act from the same facts.

The broker's own conduct in that same sale is regulated separately again, under the license law in chapter 18.85 RCW and the rules in WAC 308-124. Three regulators can touch one financed Washington transaction: the Bureau over the lender's federal disclosures, the Department of Financial Institutions over the mortgage broker's license, and the Department of Licensing over the real estate broker. Our post on interest rates and WA home sales walks through the financing side of that transaction.

Example

Tom is buying a house in Vancouver, Washington for $498,000 with 10 percent down. He puts $49,800 down and needs a loan of $448,200. He picks his lender off an online advertisement headlined 4.99 percent, with no annual percentage rate anywhere on the page. His broker, Elena, notices the missing figure before he applies.

One advertisement, two problems. Regulation Z, which the Bureau writes and enforces, provides that if an advertisement states a rate of finance charge, it shall state the rate as an annual percentage rate, using that term (12 CFR 1026.24(c)). Separately, RCW 19.146.0201 prohibits a Washington mortgage broker or loan originator from advertising an interest rate without disclosing the annual percentage rate. The Bureau can act against the lender under federal law and the Department of Financial Institutions can act against the state license, on the same advertisement.

Tom applies with a different lender instead. His Loan Estimate arrives inside the three business day window and shows a note rate of 6.5 percent alongside a higher annual percentage rate, because the annual percentage rate folds in the $6,300 of lender costs the headline rate left out. That gap between 6.5 percent and the annual percentage rate is the whole reason the Bureau requires the second number. Elena's contribution to the transaction was one question about a missing figure in an advertisement.

Common Mistakes and Exam Traps

• The Dodd-Frank Act created the Bureau in 2010, but the Bureau did not take up the transferred consumer financial protection functions until July 21, 2011. Exam items offer 2010 as the operating date.
• Regulation Z implements the Truth in Lending Act and Regulation X implements the Real Estate Settlement Procedures Act. Swapping the two regulation letters is a standard distractor.
• The Bureau does not license real estate brokers. In Washington, real estate licensing sits with the Department of Licensing under chapter 18.85 RCW, while mortgage broker and loan originator licensing sits with the Department of Financial Institutions under chapter 19.146 RCW.
• The Bureau writes and enforces the regulations, but it did not write the statutes. The Truth in Lending Act and the Real Estate Settlement Procedures Act are acts of Congress that predate the Bureau by decades.