In an attempt to correct the deficiencies that led to the financial crisis, the United States government has added a new agency to the mix. The U.S. Consumer Financial Protection Bureau (CFPB) was created this year as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and takes affect July 21st.
The broad purpose behind the creation of the CFPB is “to address failures of consumer protection by establishing a new financial agency to focus directly on consumers, rather than on bank safety and soundness or on monetary policy.”
The bureau will operate under the Federal Reserve and its purpose, according to the agency’s website, is to:
- Conduct rule-making, supervision, and enforcement for Federal consumer financial protection laws
- Restrict unfair, deceptive, or abusive acts or practices
- Create a center to take consumer complaints
- Promote financial education
- Research consumer behavior
- Monitor financial markets for new risks to consumers
- Enforce laws that outlaw discrimination and other unfair treatment in consumer finance
If you’re in the lending business, there’s a new Sheriff in town
And “sheriff” isn’t too strong a word! The bureau’s website specifically states: ”The CFPB will also be a cop on the beat to patrol the consumer financial services markets.” From the looks of it, the bureau will have authority over all things consumer protection related. What ever agency or department a piece of financial legislation has had in the past will now be under the watchful eye of the new bureau.
In addition, it will also have authority over all financial institutions in the country including not only mortgage-, auto-, and credit card-lenders, but also some of the grayer participants in the world of finance, such as payday loan providers, debt collectors and foreclosure relief services.
Some of the functions the CFPB is specifically charged with carrying out include putting an end to no income verification mortgages (“liar loans”), the elimination of prepayment penalties, ending the paying of bonuses to lending employees for steering consumers into high cost loans, and advancing the providing of simpler disclosures for financial transactions.
What the Consumer Financial Protection Bureau won’t cover
As is the case with nearly all legislative actions, there are exceptions to who’s covered under CFPB’s jurisdiction. Those entities specifically excluded from the bureau’s oversight include:
- Merchants, retailers, and other sellers of nonfinancial goods or services;
- Real estate brokerage activities;
- Manufactured home retailers and modular home retailers;
- Accountant and tax preparers;
- Legal practitioners;
- Employee benefit and compensation plans;
- Persons regulated by the SEC, the CFTC, a state securities commission, a state insurance regulator, or the Farm Credit Administration;
- Motor vehicle dealers, unless they provide mortgages or extend consumer retail credit without assigning it to third parties; and
- Tax-exempt organizations.
(Source: The Inside Counsel)
The Consumer Financial Protection Bureau’s website
If you haven’t visited the bureau’s website, it’s an excellent one. Not only does it include the bureau’s basic functions, but it also offers a wide range of consumer education, much of it on short videos.
The site also includes a blog with a variety of article posts which enable you to weigh in with your own comments and criticisms.
From a consumer standpoint, perhaps the most important section of the site is the Consumer Questions and Complaints page. You can register your complaints against a particular lender using a simple question/answer format that guides you through the process.
Will the CFPB fix what’s broken in the financial system?
The purpose of the CFPB seems to be aimed at fixing the conditions that led to the financial meltdown: loans to the non-qualified, deceptive lending practices, high cost loans, loans with super low teaser rates, and the complicated gobbledy-gook that passes for financial disclosure. Will it work? That remains to be seen.
The bureau is brand new, and optimism at the federal level is high. But it has an enormous mission and as much power as it’s been given, power often dissipates into a sea of complicated details that weren’t anticipated when the mission was given.
As the CFPB website states emphatically: An informed consumer is the first line of defense against abusive practices. If I’m interpreting that correctly, I think it means we’re still on our own. But only time will tell.
What do you think? Would this kind of agency have done anything that would have prevented the financial crisis? Do we even need more consumer protections? Or is this just the government creating a new bureaucracy?
Below is a video from the CFPB talking about what they are: