The new Consumer Financial Protection Bureau is off and running after the appointment of Richard Cordray as its Director. Consumer advocates are ecstatic, as it is the first government agency to have the power to establish rules and enforce laws designed to protect borrowers. Yet, there is also a growing bubble of apprehension over the agency’s absolute, unchecked power to do pretty much what it wants or thinks it needs to do in order to fulfill its mission. It’s difficult to mount opposition to a government agency that has the consumer’s back, however, never before has our government installed an agency that sits outside and above the Constitution or the oversight of the people.
The CFPB – What is its purpose?
On its face, the initiatives laid out by the CFPB seem noble and just: To educate consumers on borrowing best practices; to simplify the loan documentation process; to clamp down on abusive practices by lenders; and to be the receptacle for consumer complaints against lenders. Although there are already laws and processes in place that accomplish all of these, the CFPB intends to address consumer complaints about a broader range of financial products, and to more closely monitor the practices of the banking and non-banking industries.
What is the Role of the CFPB in protecting consumers?
Since its debut in July 2011, the CFPB has received 9,307 credit card complaints from consumers regarding excessive credit card fees, overly complicated credit card statements, and deceptive terminology in the fine print of credit card terms. This has resulted in some customers being refunded erroneous fees charged by credit card issuers, and a proposal of a shorter, simplified credit card statement that is more user friendly. The latest version of the simplified form can be found on the CFPB website for review.
Currently, the CFPB is reviewing the practices of unregulated segments of the lending industry such as payday lenders, collection agencies, and mortgage brokers. Most of us are aware that payday loans are targeted to a those with poor credit or in desperate financial straits, often making a bad situation worse by charging outrageous fees and interest rates. The regulation or elimination of such a revolting industry can only be good news for the public.
Collection agencies deserve every bit of bad press thrown their way, as they engage in deceptive, unethical, and sometimes threatening practices to collect debt from people. I’m not advocating that people not pay the debts they owe, but many of the tactics used by debt collectors is unnecessary and unproductive. To that end, the CFPB has proposed a rule that would bring these agencies under their federal supervision, whereas it was formerly overseen by the FTC.
The collapse of the housing market resulted in massive numbers of foreclosures, and a contributing factor to its demise was many of the subprime loans that were made by nonbank mortgage brokers. To address the issues regarding mortgage modifications and confusing loan agreements, the Consumer Financial Protection Bureau is formulating mortgage servicing standards that can be applied to previously unregulated sectors of the mortgage industry.
More Protection – But at What Cost?
The CFPB has extended its interests to include the student loan and auto loan industries, as well as the banking industry’s use of account and overdraft fees. In response to this development, we are very likely to see banks and other lenders respond to tighter rules and more requirements by raising fees or simply changing their lending qualifications to exclude risky borrowers altogether. They also intend to supervise the credit bureaus, which have had a free reign in how they operate. That too should be a good thing for consumers who are often frustrated in their attempts to work with them on a number of issues.
Where will the CFPB go next? The point is, we don’t really know and they can go just about anywhere they want over and beyond credit card information. The issue before the American people is, while it may be a good thing to have another consumer watchdog looking out for us, just how far are we willing to let it go to protect us, and how much power are we willing to give yet another government agency?
Aubrey Clark is the CEO of Aunica Media LLC and an editor and author for DirectBanc.com, a website dedicated to helping people find low interest credit cards. Aubrey holds a degree in marketing, but is a “self-proclaimed” credit expert having managed credit and underwriting departments for National retail, wholesale and mortgage companies over a twenty-five year time period.