This is the first post in a series on how CFPB develops policy: the vision, the reality, and the future.
In creating the CFPB, in what was and is a radical departure from the structure and mandate of other federal agencies, Congress sought to center the voices and experiences of marginalized, or, in the language of the statute, “traditionally underserved” communities. In this blog series, we explore:
- How was CFPB uniquely designed to center the voices of the “traditionally underserved”?
- Have recent reorganizations at the CFPB undermined this congressional mandate?
- What could be done to build a CFPB that can serve consumers and the public well for the next 100 years?
Current demands for racial and economic justice make this conversation more pressing than ever.
Why the CFPB Was Created
When the CFPB was created in the wake of the 2008 financial crisis, legislators understood that predatory subprime lending had taken down the U.S. financial system, and the hard-earned wealth of many families, particularly Black and Brown families, along with it. The Senate Report on the Dodd-Frank Act cited a Federal Reserve Board study, which found that 54% of African-Americans and 47% of Hispanics received high-cost mortgages in 2006, compared to the only 18% of non-Hispanic Whites who had received high-cost mortgages. Borrower-related factors other than race, such as income, accounted for only one-sixth of this disparity.
To this day, African American families, in particular, have not recovered from the economic fallout of the subprime lending boom and bust.
Because Congress believed inconsistent application and enforcement of consumer protection and fair lending laws had enabled the crisis, a new agency was created. This agency, the CFPB, was charged with being consumer focused, with special attention to “traditionally underserved consumers.” A focus on racial and economic equity was embedded in the CFPB’s creation.
The use of the term “traditionally underserved consumers” reflected an understanding that many consumers are not, and have never been, well served by traditional financial service providers. This understanding crossed the aisle during the years leading up to the CFPB’s creation: President Bush’s Advisory Council on Financial Literacy , for example, used the expansive definition of “credit underserved” to reference the unbanked and underbanked. In committee hearings following the financial crisis, “underserved” was frequently used to describe low-income communities, communities of color, and, occasionally, older people.
The CFPB’s Structure, as Mandated by the Dodd-Frank Act
Whether in the enforcement authority given the CFPB for fair lending or in the expectation that market monitoring would include the risks of consumer financial products or services to traditionally underserved consumers, Congress charged the CFPB with seeing, hearing, and acknowledging those marginalized and discriminated against communities whose exploitation had led directly to the Great Recession. This mandated focus on the “traditionally underserved” is woven into the CFPB’s mission, authorities, and statutory organizational structure.
The Dodd-Frank Act sets forth a radically new vision for how the CFPB, as a government agency, should orient itself and develop policy. There are seven offices or functional units the Director of CFPB is required to establish: The Office of Research is charged with conducting research and reporting on access to “fair and affordable credit” for traditionally underserved communities and, more generally, “the experiences of traditionally underserved consumers” with credit and other consumer financial products and services. Next, the Office of Community Affairs is tasked with “providing information, guidance, and technical assistance” on traditionally underserved communities’ experiences with consumer financial products and services. Then comes the consumer complaint function, itself a radical mandate with a clear purpose of making visible to the agency, and to Congress, consumers’ experiences with credit, in their own voices. Offices for Fair Lending, Financial Education, Service Member Affairs, and Older Americans all follow. Each of these offices is tasked with “coordinating” with relevant state and federal agencies, and some are tasked with providing reports to Congress.
Congress added more mechanisms for robust input into the agency’s work. For example, a private loan ombudsman has duties ranging from receiving and resolving student loan borrower complaints to developing policy recommendations annually for the Department of Education and multiple congressional committees. Congress also mandated that the Director of CFPB establish a Consumer Advisory Board, whose members are to include “representatives of communities that have been significantly impacted by higher-priced mortgage loans,” as well as members with expertise in fair lending and civil rights.
A Mission of Accountability to Racial and Economic Justice
In short, at the heart of CFPB’s mandated structure is a mission of accountability to racial and economic justice. The language is broad enough to permit inclusivity and evolution, but pointed enough to be clear. The CFPB must pay attention to the voices and experiences of Black and Brown communities, of low-income communities, of communities with particular vulnerabilities, such as older Americans or service members. Congress envisioned fundamental accountability to these specific communities through a specific, mandated structure.
In the next blog post, CRREA Project will assess how this design played out. Did Congress fall short in its design? Did the CFPB fall short in its execution? Or was it just right?