Safeguarding consumers against fraud, deception, and unfair practices is the responsibility of federal, state, and local consumer protection agencies, which need sufficient resources and authority to pursue their missions vigorously. Important to this mandate is the ability of consumers to participate in the process of making the laws that protect their rights and interests, as well as their right to challenge violations of these laws. Consumer participation in administrative, legislative, and judicial processes is often valuable for these purposes.
At the federal level, the Consumer Financial Protection Bureau (CFPB), established in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), is the agency in charge of financial consumer protection. The CFPB is authorized to protect consumers from unfair, deceptive, or abusive practices through rulemaking, supervision, and enforcement. In addition the CFPB engages in consumer education and maintains a public consumer complaints database. The CFPB also focuses on special populations that are often specific targets of abuses, including older Americans, students and younger consumers, and military service members. As a result of its crucial work, the CFPB has leveled the playing field between financial services providers and consumers (see this chapter’s section on Regulation, Monitoring, and Enforcement of Consumer Financial Products).
One reason the CFPB has been so effective is its independent budget structure. Like the financial industry regulators, such as the Office of the Comptroller of the Currency, the CFPB is not subject to the annual appropriations process. Proposals in recent years have sought to weaken the CFPB, including attempts to subject its budget to the appropriations process. Doing so would weaken the agency’s independence, giving Congress the ability to greatly decrease the CFPB’s budget and to roll back existing or proposed consumer protection regulations. Other congressional opponents of the CFPB have called to repeal the agency entirely.
States are also active in protecting consumers. They do so through laws that are parallel to and complementary of federal protections in such areas as antitrust, unfair trade practices, and financial services policies. Many state agencies, consumer affairs offices, and attorneys general have been particularly active in protecting consumer rights through their work enforcing these laws and regulations. Unfortunately, such agencies are suffering significant budget cuts and in some cases have been eliminated altogether, undermining consumers’ ability to obtain redress or make their problems known to the public.
States have long been recognized for playing an invaluable role in developing innovative advances in consumer health, safety, and financial regulations. In many cases, state initiatives provide a model for needed improvements in federal regulation. To strengthen the ability of states to do such work, Dodd-Frank put in place limits on the authority of federal banking agencies to preempt more protective state laws. Specifically, federal banking agencies may only preempt a state law that “prevents or significantly interferes” with the bank powers under federal law.
One area where federal, state, and local officials should focus more attention on is how best to protect consumers with diminished cognitive capacity, Alzheimer’s’ Disease, and other dementias—problems that become increasingly likely as people age. In many cases financial service providers are the first people to recognize signs of cognitive decline because the ability to work with numbers and manage money are among the first skills which noticeably decline for those with diminished capacity. People with diminished capacity are among the most vulnerable targets for financial exploitation and abuse. Additionally, reverse mortgage borrowers who cannot keep up with required paperwork and payment of property taxes and insurance as a result of diminished capacity may face foreclosure and loss of their homes.
Federal and State Roles in Consumer Protection Regulation: Policy
Federal preemption of state law
Federal legislation should be the floor, not the ceiling, of consumer protection regulation. When considering proposals that include preemption provisions in federal laws and regulations, policymakers should consider:
- the extent to which the federal or state authorities have identified and focused on the specified problem and addressed the problem satisfactorily;
- the potential benefits resulting from additional federal, state, or local laws;
- the possibility of intolerably high compliance burdens resulting from both federal and state regulations;
- unique state or local needs that would be adversely affected;
- the capacity of states to respond effectively to emerging issues, unusual circumstances, or unanticipated consequences;
- the need to preserve the role of states as laboratories for policy innovation within our federal system; and
- the importance of giving state attorneys general and other state officials concurrent authority to enforce federal statutes intended to protect consumer and investor rights.
Preserving the Consumer Financial Protection Bureau
Congress should maintain an independent and robust Consumer Financial Protection Bureau (CFPB) as the consumer protection regulator, including continuing the CFPB’s existing funding structure.
Goals of state regulation
State and local governments should expand and strengthen:
- consumer protections through legislation, regulation, and enforcement procedures; and
- consumer service programs (including those targeting diverse communities), which are fundamental to ensuring that older citizens are treated fairly in the marketplace. Funding should also be allocated for consumer outreach and education programs, which are vital preventive measures in protecting consumers.
State and local governments should adequately fund consumer and financial regulatory agencies and, if necessary, charge covered industries fees to support the regulation.
Protecting vulnerable consumers
Policymakers and financial institutions should put in place processes and procedures for assisting consumers with diminished capacity or those who are at risk of financial exploitation, for example, by regularly collecting contact information for a trusted person who can be notified of a problem if the consumer is exhibiting signs of diminished capacity or is at risk of financial abuse.