The Consumer Financial Protection Bureau (CFPB)
Between 2007–2009, the world witnessed a financial crisis, the Great Recession, that led to the collapsing of economies. In the U.S., business stocks declined, and the markets froze, which made it difficult for companies, both small and large, to continue operating. As reported by History.com Editors (2018), financial experts and politicians associated this economic collapse with a “lack of oversight and regulation of financial institutions” (p.1). Financial institutions attached hidden fees to their loans at the time, lending to unqualified personnel, and most investors were exhausting their financial reserves (History.com Editors, 2018). Such practices called for the federal government to react and enact legislations that would prevent similar occurrences in the future. Consequently, the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, was passed and signed into law by President Barrack Obama in July 2010 (Hayes, 2020). The law was meant to make sixteen key reforms by enhancing strict regulations on financial institutions meant to protect the consumers and prevent the reoccurrence of a similar recession (History.com Editors, 2018). The law would also lead to several agencies' development to enforce the regulations proposed and implement reforms.
Among these new agencies developed is the Consumer Financial Protection Bureau (CFPB). This agency is tasked with protecting consumer rights, and its managed by the Federal Reserve System, also known as the central bank of the United States. The Federal Reserve System is responsible for “Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers” (Federal Reserve.gov, 2016, p.1). The Consumer Financial Protection Bureau (CFPB) ensures that financial institutions treat their consumers fairly (Consumer Financial Protection Bureau, 2019). The agency prevents all forms of predatory lending, including imposing inflated Interest Rates, unfair or abusive terms, enhancing borrowers’ equity, preventing the imposition of high fees, etc. (Hayes, 2020). CFPB also provides the consumer with educational tools, which help them understand and plan their finances (Consumer Financial Protection Bureau, 2019). Moreover, the CFPB also governs credit, debit cards and manages consumer complaints. All lenders are obliged to disclose information to consumers in simplified terms.
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The Consumer Financial Protection Bureau (CFPB) has developed fourteen laws to execute its mandates effectively. Some of these laws are as follows: To ensure fair treatment, the CFPB has enacted equal credit opportunity (Regulation B), which prohibits financial institutions from discriminating against customers based on their sexual orientation (Consumer Financial Protection Bureau, 2019). the CFPB has also implemented the higher-priced mortgage loan escrow exemption (regulation z), which regulates and defines the exemptions insured depository institutions or credit unions from establishing escrow accounts for specified higher-priced mortgage loans (Consumer Financial Protection Bureau, 2019). Escrow accounts act as third parties, which holds the assets on behalf of parties involved in a transaction. The assets are only released when the two parties have entered an agreement. Other rules implemented by the CFPB include Debt Collection Practices (Regulation F), which enforces the Fair Debt Collection Practices Act (FDCPA), the Civil Penalty Inflation Adjustments, which defines the rates of adjusting inflation penalties, among other rules (Consumer Financial Protection Bureau, 2019). These federal consumer financial laws enhance fairness in the financial markets, both to the consumers and the competitors.
The CFPB recognizes that the only way to ensure that the customers receive fair treatment in the financial markets is by holding the financial service providers accountable. Therefore, the CFPB enforces the federal consumer financial laws to ensure that financial service providers are accountable for their actions, which gives the CFPB the authority to investigate any violation of the provisions in these laws. The CFPB can sue violators in federal courts or through administrative proceedings within itself. The CFPB has the power to impose a civil money penalty, which is deposited in the Civil Penalty Fund (Consumer Financial Protection Bureau, 2019). The fines range from “zero dollars to: 1) $5,000 a day for violations of law; 2) $25,000 a day for reckless violations of law; and 3) a million dollars a day for knowing violations of the law” (Mogilnicki, 2019, p.1). The CFPB can use the investigation rules, the adjudication rules, and sending early warning messages to violators (Consumer Financial Protection Bureau, 2019). Once a client has submitted a petition against a company, the CFPB reviews it and notices these companies. Consequently, upon receiving the complaints, these companies contact the petitioner regarding the issue within fifteen days (Consumer Financial Protection Bureau, 2019). The CFPB then publishes the complaint, and the petitioner is given a 60 days ultimatum to respond to the company's response.
If the company is deemed to have violated the laws set by CFPB, it is ordered to remedy the harm by compensating the victim. Likewise, the company may also be asked to deposit the fines in the civil penalty fund or the redress program (Consumer Financial Protection Bureau, 2019). The CFPB can then make compensations to the harmed customers on the violator’s behalf. After every six months, these funds are paid to the customers when the officials meet and determine which classes to be compensated.
An example of a case brought by the CFPB against a company that has been deemed to have violated its provisions is BrightSpeed Solutions. On March 3, 2021, the CFPB sued BrightSpeed Solutions, Inc. and its C.E.O., Kevin Howard, in the U.S. District Court for the Northern District of Illinois for supporting internet-based fraudulent activity. BrightSpeed Solutions was a privately owned company located in Chicago, Illinois that ceased its operations in 2019. The company used to act as a third-party payment processor for companies; thus, the CFPB accused the company of knowingly processing payments for companies involved in fraudulent activities. Between 2016 and 2018, BrightSpeed Solutions processed the payments of the said technical-support services and products companies, who tricked their consumers into purchasing expensive and unnecessary anti-virus programs. The CFPB alleges that by processing these payments, the company violated the Consumer Financial Protection Act of 2010; thus, it should be imposed with the following penalties: disgorgement of all ill-gotten funds, pay damages to customers, and imposition of civil money penalties. The case is yet to be determined.
The Federal Trade Commission (F.T.C.)
Governments enact antitrust laws, competition laws to protect their consumers from unfair or deceptive business practices and facilitate fair competition in the markets. According to Chen (2020), without these statutes, consumers would be exploited by business operators who are after maximizing profits, and the business with power, especially monopolies, would continue to hinder new entrants from accessing the markets. The first antitrust law to be passed in the U.S. was known as the Sherman Act of 1890, meant to facilitate free and unconstrained competition (Federal Trade Commission, 2017). Consequently, two more antitrust laws, the Federal Trade Commission Act and the Clayton Act, were passed in 1914 (Federal Trade Commission, 2017). The F.T.C. is an independent federal agency of the U.S. established in 1914 by President Woodrow Wilson.
This agency’s mandate is twofold: protect consumers and promote competition (Federal Trade Commission, 2014). The agency protects consumers by deterring “unfair, deceptive or fraudulent practices in the marketplace” (Federal Trade Commission, 2014, p.1). The protection is made possible by investigating businesses or individuals who have been purported to have violated its laws, provide education to consumers about their rights, and develop and enact laws in the marketplace (Federal Trade Commission, 2014). Further, the agency also researches improvements. On the other hand, the agency promotes fair competition in the market by ensuring that the consumers are not exploited. The agency ensures that the prices are favorable to consumers and that the products availed in the markets meet the desired quality (Federal Trade Commission, 2014). Moreover, this agency also ensures that traders can fairly enter or exit markets. In other words, the agency ensures that no illegal market practices are conducted in the U.S.
Some of the F.T.C.'s functions include enforcing laws. The agency can sue companies or individuals who violate the laws' provisions in the courts of law (Davis, 2019). Unlike the Consumer Financial Protection Bureau (CFPB), which can sue violators within its established structures, the F.T.C. only used the court of laws to sue violators. Likewise, the agency also investigates possible violations of law provisions. The investigations help determine whether the accusations brought forward against an individual or a company are valid (Davis, 2019). Also, with the increasing activities in internet commerce, the agency ensures that companies comply with all internet-based laws. Moreover, the agency also conducts oversight and monitoring for violations of the provisions in the laws.
The Federal Trade Commission (F.T.C.) effectively executes its mandate through its three Bureaus: The Bureau of Consumer Protection, the Bureau of Competition, and the Bureau of Economics (Davis, 2019). The Bureau of Consumer Protection is responsible for protecting the consumers against ill-businesses practices, such as deceptive advertising, defective products, etc. (Davis, 2019) (Davis, 2019). On the other hand, the Bureau of Competition prevents anti-competitive business practices, including monopolies, price-fixing, etc., which enhances fair commercial competition (Davis, 2019). The Bureau of Economics collaborates with the other two Bureaus to conduct expert economic research and knowledge of the existing laws or proposed laws.
Some of the Federal Trade Commission’s rules and guides include The Advertising Allowances and Other Merchandising Payments and Services ("Fred Meyer Guides") 16 C.F.R. Part 240, which provides guidelines to producers and wholesalers on supporting retailers without discrimination (Federal Trade Commission, 2019). The Advertising of Warranties and Guarantees (16 C.F.R. Part 239) provides guidelines on how advertisers can promote warranties and guarantees of their services or products without deception (Federal Trade Commission, 2019). These guidelines call for advertisers to fully disclose the warranty coverage of the advertised products or services in an easy-to-understand way by the consumers. The Business Opportunity Rule (16 C.F.R. Part 437) obliges all business opportunity sellers to disclose all information regarding these opportunities to the prospective buyers so that they can weigh the benefits and risks (Federal Trade Commission, 2019). The Children's Online Privacy Protection Rule ("COPPA") (16 C.F.R. Part 312) addresses the concerns of children below 13 years of age (Federal Trade Commission, 2019). This rule obliges the websites or online services operators to give consent while collecting personal information from these children. The Fair Packaging and Labeling Act: Exemptions from Requirements and Prohibitions Under Part 500 (16 C.F.R. Part 501) requires that all "consumer commodities" “be labeled to disclose net contents, identity of commodity, and name and place of business of the product's manufacturer, packer, or distributor” (Federal Trade Commission, 2019). These are examples of the rules and guidelines as stipulated by the Federal Trade Commission.
The violations of these rules and guidelines subject the company or individuals to litigation. According to Federal Trade Commission (2017), the Supreme Court of the U.S. holds that any violation of the Sherman Act translates to a violation of the Federal Trade Commission Act. The Sherman Act has both civil and criminal law implications; therefore, individuals and businesses can be prosecuted by the Department of Justice. Likewise, corporations deemed to have violated this act can be subjected to criminal penalties of $100 million (Federal Trade Commission, 2017). Likewise, an individual may be fined for the same offense a maximum of $1 million, ten years in prison, or both (Federal Trade Commission, 2017). However, these fines can only be imposed if determined that the violations are clear and committed intentionally. Moreover, the federal law also stipulates that the “maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million” (Federal Trade Commission, 2017, p.1). Therefore, the violations of the Sherman Act may have adverse implications to violators.
Examples of companies fined for F.T.C.'s violations include the University of Phoenix’s case. The university had been accused of using deceptive advertisements by falsely claiming that they have forged relationships with companies, such as Yahoo, Microsoft, Twitter, so it would be easier for students to get employment from these students (Federal Trade Commission, 2019b). Following these allegations, the university agreed in December 2019 to pay $191 million ($50 million in cash penalties and to forfeit $141 million of the affected students’ debt affected by these deceptive advertisements) to settle the case (Federal Trade Commission, 2019b).
In another case involving National Landmark Logistics, L.L.C., the F.T.C. accused the company and its associates of violating its provisions by collecting over $12 million debts from their consumers using prohibited practices (Federal Trade Commission, 2020). The F.T.C. alleged that the company violated its provisions by using robocalls to deceive the debtors by threatening them that they faced legal actions if they failed to settle their debts (Federal Trade Commission, 2020). Under the terms of a settlement, some of the defendants in this case, including Liberty Solutions & Associates, L.L.C., and James Dennison, were permanently banned from participating in debt collection.
In conclusion, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (F.T.C.) have played a significant role in enhancing fair market competition and protecting consumers from exploitation. These agencies have played a critical part in making the markets work in favor of businesses and the consumers.
References
Chen, J. (2020). Understanding Antitrust Laws . Investopedia. https://www.investopedia.com/ask/answers/09/antitrust-law.asp#:~:text=Antitrust%20laws%20are%20statutes%20developed
Consumer Financial Protection Bureau. (2019, March 21). Consumer Financial Protection Bureau . Consumer Financial Protection Bureau. https://www.consumerfinance.gov/
Davis, M. (2019). A Short History of the U.S. Federal Trade Commission . Investopedia. https://www.investopedia.com/articles/financial-theory/10/the-us-federal-trade-commission.asp
Federal Reserve.gov. (2016). The Fed - What is the purpose of the Federal Reserve System? Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/faqs/about_12594.htm
Federal Trade Commission. (2014, April 15). What We Do . Federal Trade Commission. https://www.ftc.gov/about-ftc/what-we-do
Federal Trade Commission. (2017, December 15). The Antitrust Laws . Federal Trade Commission. https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws
Federal Trade Commission. (2019a). Rules and Guides . Federal Trade Commission. https://www.ftc.gov/enforcement/rules/rules-and-guides
Federal Trade Commission. (2019b, September 17). The University of Phoenix, Inc. Federal Trade Commission. https://www.ftc.gov/enforcement/cases-proceedings/152-3231/university-phoenix-inc
Federal Trade Commission. (2020, June 29). National Landmark Logistics, L.L.C . Federal Trade Commission. https://www.ftc.gov/enforcement/cases-proceedings/202-3071/national-landmark-logistics-llc
Hayes, A. (2020, September 1). Dodd-Frank Wall Street Reform and Consumer Protection Act . Investopedia. https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp
History.com Editors. (2018, August 21). Dodd-Frank Act . HISTORY. https://www.history.com/topics/21st-century/dodd-frank-act
Mogilnicki, E. (2019, April 16). CFPB has too much flexibility in assessing fines . American Banker. https://www.americanbanker.com/opinion/cfpb-has-too-much-flexibility-in-assessing-fines
