Federal and State Roles in Consumer Protection Regulation

Federal, state, and local consumer protection agencies all have a role in safeguarding consumers against fraud, deception, and unfair practices. But they need sufficient resources and authority to carry out their responsibilities. Consumers must be able to take part in making the laws that protect their rights and interests. They should also have the 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 An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. ( CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. ) is charged with making rules governing consumer finance markets to protect consumers from unfair, deceptive, or abusive practices. It also enforces these rules, and it supervises financial institutions for compliance with them. In addition, the CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. educates consumers about their rights and publishes a database of consumer complaints it has handled. The CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. has proposed making this database private. The CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. also assists vulnerable populations, including older Americans and military service members, who are often specific targets of abuses (see also this chapter’s section on Regulation, Monitoring, and Enforcement of Consumer Financial Products). Recent leadership changes led to a reshuffling of CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. offices addressing students and young Americans, as well as fair lending concerns, reflecting possible changing priorities for the CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. .

One reason the CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. has fulfilled its mission to date is that its budget is independent. Like banking regulators, such as the Office of the Comptroller of the Currency, the CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. is not subject to the annual appropriations process. Other agencies may receive appropriations through Congress or may be fee-funded. Charging fees to pay for the cost of regulation can at times have negative consequences. In some cases, fees may be passed onto consumers in the form of higher prices (as with the Transportation Security Administration fees on airline tickets). Other times, fees charged may create new conflicts of interest that alter regulator behavior. For example, in the years prior to the financial crisis, banking regulators competed for business among covered banks in exchange for favorable treatment. Even today, some regulators may consider fee-paying entities as their “customers.”

Another reason the CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. has fulfilled its mission is that it has a single director as its head, rather than a commission. The CFPB An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. is one of several federal agencies structured with a single director to ensure the agency’s effectiveness and independence from the political process. The Federal Housing Finance Agency is another. Although a commission may represent a broader set of perspectives, it is also likely to lead to gridlock. Under a commission structure, commissioners with differing views may be unable to agree on policy, regulations, or enforcement, leaving an agency unable to respond adequately to pressing issues in the marketplace. Commissions may also lack a quorum to act if the president does not appoint, or Congress does not confirm, individuals to fill a minimum number of seats. One challenge with the director structure, however, is that the director is not required to have experience in or a commitment to protecting consumers.

States also play an active role in protecting consumers. State laws are similar to and complement federal laws 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 and have important oversight roles in areas such as non-bank and insurance products. 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.

Policymakers should focus more attention on protecting vulnerable consumers. People with diminished capacity may be especially vulnerable to abusive financial products or foreclosure. For example, reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… borrowers with diminished capacity who cannot keep up with required paperwork and payment history can lose their homes to foreclosure. People with diminished capacity are among the most vulnerable targets for financial exploitation and abuse.

In some cases, financial service providers are the first people to recognize signs of cognitive decline. This is because the ability to work with numbers and manage money are among the first skills that noticeably decline for those with diminished capacity. As a result, policymakers at the federal level and some states have put in place mandatory reporting laws. Many states require financial institutions to report suspected cases of elder financial exploitation to law enforcement and Adult Protective Services. Financial institutions that do so in good faith are then shielded from liability for having made the report.

The Financial Crime Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, requires that financial institutions file a confidential “suspicious activity report” (SAR) when they suspect elder financial exploitation and other criteria are met. Law enforcement agencies are able to use information in the reports to identify, investigate, and prosecute elder financial abuse.

FinCEN’s SARs public database contains information on how often financial institutions are filing SARs for suspected elder financial exploitation. But it does not contain other specifics. Providing more information—including statistics on the type of suspected fraud, the amount of the suspicious transactions, and other information gathered from analyzing the narrative explanation—would make it easier for policymakers and researchers to track elder financial exploitation. It also could help communities and nonprofits to identify proactive steps to stop exploitation.