CFPB Is Not Self Funded

CFPB Is Not Self Funded

How is the CFPB Funded

If the CFPB is not self funded, then how are they funded? I have been to many a presentation by various parties in the real estate industry that represent that the CFPB is self funded, however the CFPB is not self funded.

Let’s start with how they came into existence. You can read the long version at the The CFPB strategic plan, budget, and performance plan and report of February 2015.  The Bureau of Consumer Financial Protection, known as the Consumer Financial Protection Bureau (CFPB), was established on July 21, 2010 under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act Public Law No. 111-203 (Dodd-Frank Act). It started life out under the supervision of the Secretary of the Treasury. The U.S. Senate confirmed the appointment of Richard Cordray on July 16, 2013, and Director Cordray was sworn in as the first Senate confirmed Director of the CFPB on July 17, 2013.  The CFPB was established as an independent bureau within the Federal Reserve System.

That is right. The CFPB is within the Federal Reserve System.The Federal Reserve or The FED  is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. It operates under authority of the Congress, but is not funded by Congress or the Taxpayer.

Under the Dodd-Frank Act, on the designated transfer date, July 21, 2011, certain authorities and functions of several agencies relating to Federal consumer financial law transferred to the CFPB in order to accomplish the above objectives. These authorities were transferred from the Board of Governors of the Federal Reserve System (Board of Governors), Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and the Department of Housing and Urban Development (HUD). In addition, Congress vested the Bureau with authority to enforce in certain circumstances the Federal Trade Commission’s (FTC) Telemarketing Sales Rule and its rules under the FTC Act, although the FTC retains full authority over these rules. The Dodd-Frank Act also provided the CFPB with certain other Federal consumer financial regulatory authorities.

That is an impressive level of authority for an Executive Agency. The Bureau is an Executive agency as defined in Section 105 of Title 5, United States Code. So, with all of that authority, where do they get their money to pay for operations?

Contrary to public rumor, they do not pay for operations from civil money penalties and fines. The CFPB’s operations are funded principally by transfers made by the Board of Governors of the Federal Reserve System from the combined earnings of the Federal Reserve System, up to the limits set forth in the Dodd-Frank Act. The Director of the CFPB requests transfers from the Federal Reserve System in amounts that he has determined are reasonably necessary to carry out the Bureau’s mission without exceeding the limits in the Dodd-Frank Act. For FY 2016, the transfer cap is estimated to be $631.7 million.

These monies are not in our US Treasury. Funds transferred from the Federal Reserve System are transferred into the Bureau of Consumer Financial Protection Fund (Bureau Fund), which is maintained at the Federal Reserve Bank of New York.

So, what about the civil money penalties and fines they collect? Pursuant to the Dodd-Frank Act, the CFPB is also authorized to collect and retain for specified purposes civil penalties obtained from any person for violations of Federal consumer financial laws. Funds collected by the CFPB under this authority are deposited into the Consumer Financial Civil Penalty Fund (Civil Penalty Fund) maintained at the Federal Reserve Bank of New York.

The CFPB is authorized to use these funds for payments to the victims of activities for which civil penalties have been imposed, and may also use the funds for consumer education and financial literacy programs under certain circumstances. They are not authorized to use these to fund operations.

I hope this helps to better explain how the CFPB is funded and what they use their civil money penalties and fines for. In the end, the goal is to return the money to the consumers that were hurt or damaged by the acts of the bad players in the financial system

About Kevin Hardin

Kevin W. Hardin is a 22 year veteran of the Mortgage and Real Estate industries. He holds a Juris Doctor (JD) degree from Concord Law School and a CMB (Certified Mortgage Banker) from the Mortgage Bankers Association. He is a Senior Loan Officer at HomeStreet Bank. He works with Borrowers, Attorneys, Title Companies, Real Estate Agents and Mortgage Companies on mortgage law issues.

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