When it comes to the financial services industry, there’s an endless number of regulations, requirements, guidelines, acts, industry standards and more set forth to protect consumers. Regulators, such as the CFPB, FTC, FINRA and more establish these legislations and use them to help deter risky behavior and guide their enforcement actions.
While the complete list of legislation is extensive and many laws are unique to certain industries, there are a few important acts and regulations to be aware of.
Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act)
In response to the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. This led to the creation of a number of new agencies, including the CFPB, who are tasked with overseeing the different components of the act, as well as the financial system.
The aim of the Dodd-Frank Act is “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
UDAAP (Unfair, Deceptive or Abusive Acts or Practices)
Under Dodd-Frank, UDAAPs (or unfair, deceptive or abusive acts or practices) by those who offer financial products and services to customers are illegal. This is also covered under Section 5 of the Federal Trade Commission Act (where it is referred to as UDAP, or Unfair or Deceptive Acts or Practices).
Its purpose is to ensure that consumers have access to the information they need in order to choose the best product or service for their individual situations and needs. In practice, defining UDAAP can be a bit tricky, but there are several resources that can help. Learn more about UDAAPs and how to best comply here.
TILA (Truth in Lending Act)
The Truth in Lending Act protects consumers against inaccurate and unfair billing and credit card practices. Under TILA, lenders must provide consumers with loan cost information so they can compare and make the best possible decision for their own individual needs.
CARD Act (Credit Card Accountability, Responsibility and Disclosure Act)
The CARD Act is an amendment to the Truth in Lending Act (TILA) “to establish fair and transparent practices relating to the extension of credit under an open-end consumer credit plan, and for other purposes.”
Essentially, the CARD Act is aimed to reduce unexpected fees for credit cards and improve the disclosure of costs and penalties.
As part of the CARD Act, the CFPB is required to prepare a bi-annual report for congress that details their findings regarding the cost of the availability of credit and innovations in the credit card marketplace.
Map Rule (The Mortgage Acts and Practices Advertising Rule) and Regulation N
The MAP Rule, also known as Regulation N, was published by the CFPB and FTC in 2011 to implement requirements established by the CARD Act. This act’s purpose is to prohibit unfair or deceptive acts and practices in regards to mortgage advertising and regulates how mortgage services are advertised.
TCPA (Telephone Consumer Protection Act)
The Telephone Consumer Protection Act was created to stop unwanted telemarketing calls to consumers by telemarketers, banks, debt collectors and others through the use of autodialers or robocalls. TCPA limits the use of automatic dialing systems, pre-recorded messages, text messages and fax machines.
An update in 2012 to TCPA by the FCC established the following requirements and conditions for telemarketers:
- To obtain prior express written consent from consumers before robocalling them
- Telemarketers can no longer use an "established business relationship" to avoid getting consent from consumers
- Telemarketers must provide an automated, interactive "opt-out" mechanism during each robocall so consumers can immediately tell the telemarketer to stop calling.
Higher Education Act
The Higher Education Act is designed to strengthen the educational resources for college students and to provide assistance to post-secondary students. Supervision and enforcement of this act is administered by the U.S. Department of Education.
RESPA (Real Estate Settlement Procedures Act)
RESPA requires lenders, mortgage brokers or servicers of home loans to provide borrowers with “pertinent and timely disclosures regarding the nature and costs of the real estate settlement process.” Additionally, RESPA prohibits specific practices, such as kickbacks.
Federal Trade Commission Act
The Federal Trade Commission Act’s purpose is “to prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; seek monetary redress and other relief for conduct injurious to consumers; prescribe rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and make reports and legislative recommendations to Congress and the public.”
Nationwide Mortgage Licensing System and Registry (NMLS)
NMLS is a “web-based platform for regulatory agencies to administer initial license applications and ongoing compliance requirements.” and is used by mortgage lenders, money transmitters, money services and more to process the applications of companies or individuals looking to apply, renew, surrender or amend licenses.
With this, mortgage officers are assigned a unique identifying number (an NMLS number). For compliance purposes, both personal and company NMLS numbers must be available and easy to find on their website, social media profiles and others so that consumers can check up on their lenders.
Fair Debt Collection Practice Act (FDCPA)
The FDCPA prohibits abusive, unfair or deceptive debt collection practices by collectors. Its purpose is to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”
Fair Credit Reporting Act (FCRA)
In general, the Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. Under the FCRA:
- Consumers must be notified if information on their file has been used against them
- Consumers have the right to know what's in their file
- Consumers have the right to ask for a credit score
- Consumers have the right to dispute incomplete or inaccurate information
- Consumer reporting agencies must correct or delete inaccurate, incomplete or unverifiable information
- Consumer reporting agencies may not report outdated negative information
- Access to consumer's file is limited
- Consumers must give consent for reports to be provided to employers
- Consumers may limit "prescreened" offers of credit and insurance they get based on their information in their credit report
The FCRA is the primary federal law that governs the collection and reporting of credit information of consumers. It includes how a consumer’s credit information is gathered, how long the information is kept, and how it is shared with others, including the consumer.
Securities Act of 1933
The Federal Securities Act of 1933 was created and passed into law as a response to the stock market crash in 1929. Also known as the "Truth in Securities" law or the 1933 Act, the Federal Securities Act requires companies to register with the Securities and Exchange Commission or the SEC. This act ensures that companies provide the SEC and potential investors receive financial information from securities being offered for sale, before going public.
The main goals of the legislation are: to establish laws against misrepresentation and fraudulent activities in the securities market; and to ensure more transparency in financial statements so investors can make more informed decisions about investments.