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.
Since the CFPB is in the developmental stage, they’re entertaining citizen input. You can go to the agency’s blog, and on Twitter and Facebook to weigh in with your thoughts.
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:
One of the toughest challenges facing this new agency is finding leadership. The person currently organizing it, Elizabeth Warren, has made a lot of enemies by standing up for the rights of human citizens against corporations. The CPB can only do its work if it’s not gutted by lobbyists and the government officials who kowtow to them.
You’re spot on. Hopefully they can stay impartial, unlike other agencies. Time will tell.
My question, that no one has yet to answer, is wasn’t this the FTC’s mandate also?!
Bret @ Hope to Prosper says
I sure wish they had of put the CFPB under the FTC or simply expanded the FTC, since they have done a pretty solid job over the years. There is no questions in my mind that it was placed under the Fed specifically to protect banking interests. The Fed is not even a true government agency and their regulatory oversight is abysmal.
Bigger government is never the answer.
Glen Craig says
I know a lot of people don’t like more government involvement, but I think it depends on what they are doing and what issues they are addressing.
Time will tell if this new agency will be worth it.
I have a complaint against Fidelity Investments because they won’t send me the 1800 Silver Eagle Coins I bought from them. I am amassed in government agencies not know who I should complain to, I have complained to the SEC, CFTC (who sent an email to the FTC and to myself telling me to go through them).. It has been a month since I ordered MY coins sent and I have not received them and I finally believe it is because Fidelity does not have the coins. There is more, but too much for this space. That is my nest egg. I am a senior. It is all I have and Fidelity won’t send me what is rightfully mine.