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 (CFPB) 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 educates consumers about their rights and publishes a database of consumer complaints it has handled. The CFPB has proposed making this database private. The CFPB 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 offices addressing students and young Americans, as well as fair lending concerns, reflecting possible changing priorities for the CFPB.
One reason the CFPB 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 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 has fulfilled its mission is that it has a single director as its head, rather than a commission. The CFPB 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 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.
FEDERAL AND STATE ROLES IN CONSUMER PROTECTION REGULATION: Policy
Federal preemption of state law
Federal legislation should provide a minimum level of consumer protections. It should preserve states’ ability to provide additional protections to consumers.
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 issue 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 ensure that the Consumer Financial Protection Bureau (CFPB) is a strong and independent consumer protection regulator. This includes maintaining CFPB’s existing independent funding. The CFPB should also:
- maintain its sole director structure;
- strongly enforce consumer financial protection laws;
- strengthen oversight and regulation of abusive financial products and services;
- maintain a public database of consumer complaints, including those made by older adults;
- pay special attention to populations most at risk of financial victimization, including older adults;
- regularly evaluate consumer fraud and financial exploitation; and
- frequently engage with the public to learn about families’ financial challenges.
The CFPB director should have demonstrated expertise in consumer protection and should be free from conflicts of interest (see also Chapter 1, Government Integrity and Civic Engagement—Ethics and Accountability).
Goals of regulation
State and local governments should expand and strengthen consumer protections, as well as consumer outreach and education programs. Consumer outreach and education programs should also be properly funded.
Regulatory agencies should receive adequate funding to carry out their missions. Regulators should carefully consider whether to charge covered industries fees to support the cost of regulation. They should avoid unintended consequences that can result from doing so, such as higher costs to consumers or potential regulatory capture.
Protecting vulnerable consumers
Policymakers and financial institutions should protect consumers with diminished capacity and others who are at risk of financial exploitation.
Policymakers should work with financial institutions to create and enforce effective processes and procedures to facilitate the reporting of suspected financial exploitation. This includes making financial institutions mandatory reporters of suspected financial abuse to Adult Protective Services and law enforcement.
Federal policymakers should:
- add statistics related to elder financial exploitation to the Financial Crimes Enforcement Network’s Suspicious Activity Reports (SARs) statistics database; and
- explore other mechanisms to make more widely available the insights contained in SARs related to elder exploitation, but only to the extent it does not compromise consumer confidentiality or impede criminal investigations and prosecutions.
Financial institutions should train their employees to prevent financial exploitation and recognize and respond, as appropriate, to suspected cases of it. They should report suspected cases of financial exploitation to adult protective services and law enforcement.