Just what is the CFPB?

By now most of you are aware that there are major changes to the way real estate professionals handle the various aspects of residential real estate settlements. On October 3, 2015*, certain fundamental changes to the Real Estate Settlement Procedures Act (RESPA), will go into effect, and you need to understand how they will (and will not) change how you do business. Many of these changes are coming from the Consumer Financial Protection Bureau (CFPB). Who or what is the CFPB?

Introducing the CFPB
It wasn’t so long ago that we were riding high on the wave of a growing real estate market. It seems like every time we looked around, buyers were willing to pay more and more money for the same piece of real estate. The late summer and early fall of 2007, that wave came crashing ashore, and we’ve been cleaning up the aftermath ever since. Some of the fallout that came to the fore was the realization that many homeowners had loans they could neither understand nor afford. In 2009, the federal government moved to create a new financial agency that was to focus on serving consumers. One of the goals of this new agency would be to protect consumers from unfair, deceptive and abusive practices in all facets of the consumer-financial world. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the Dodd-Frank Act authorized the creation of the CFPB.

What does the CFPB do?
The mission of the CFPB is, in part, to “make markets for consumer financial products and services work for Americans …” The CFPB offers tools to consumers that can help educate them about mortgages. The CFPB commissions various studies and analyses to better understand consumers, players in the financial industry, and various consumer finance markets. The CFPB implements and enforces rules and regulations that it believes are geared toward educating and protecting consumers. Some of the accomplishments that the CFPB touts include: writing and enforcing new consumer-driven rules, laws and regulations; actively enforcing laws that outlaw discrimination and other unfair trade practices; taking and acting on consumer complaints; and taking a proactive position to curtail and restrict unfair, deceptive or abusive acts and practices in the consumer-financial world.

What has the CFPB done?
The CFPB opened its doors in July 2011, accepting consumer complaints only about credit cards. The CFPB expanded its active operations in December 2011 to include complaints about mortgages. In three years, the CFPB handled approximately 395,300 consumer complaints, approximately 34 percent (or approximately 134,300) of which focused on residential mortgages. When the CFPB successfully prosecutes violations of consumer financial laws (RESPA for example), it may collect a civil penalty which will be deposited into the Civil Penalty Fund. The penalties the CFPB has collected for 2014 are as follows:

• First quarter – $37.7 million from 10 defendants
• Second quarter – $137,000 from two defendants
• Third quarter – $24 Million from four defendants

While these numbers represent more than real estate-related prosecutions, they do not include civil penalties or other related sanctions that could be imposed, including jail time.

The CFPB makes rules and laws that it believes fundamentally protect consumers, then it enforces those laws. The CFPB seems to place great weight and importance on the results of consumer surveys and market place-based analyses. As a result, the conclusions and byproducts do not always make sense to the practitioner. In the next article, we will review some of the changes to RESPA that are coming, and how those changes may fundamentally affect how you conduct your business.

*The Consumer Financial Protection Bureau (CFPB) has delayed the rule’s effective date to Oct. 3, 2015.