Impact of New Consumer Protection Bureau Unclear
The Consumer Financial Protection Bureau opened for business on July 21. If you don’t know what the CFPB is, you’re not alone. A recent poll by Consumers Union found that 32 percent of respondents were not aware that the federal government had formed the agency.
The bureau's mission is to look out for consumers in their dealings with banks, credit card companies and mortgage companies. It was created a year ago by the biggest financial services overhaul since the Great Depression.
Because it is so new it’s difficult to say exactly how the bureau will affect consumers, but the CFPB will have significant powers. The bureau initially has vowed to focus on the following:
- Credit card companies
- Mortgage disclosure documents
- Credit scores
- Mortgage servicing
Agency officials will begin monitoring the treatment of consumers by the 111 biggest banks with total assets of over $10 billion. This group represents more than 80 percent of the industry. Smaller banks and credit unions are not part of this program, though they must follow rules established by the agency.
Certainly some providers have taken advantage of consumers who didn’t understand what they were buying and couldn’t afford the product once an initial period lapsed. For the first time, the agency will set up a single hotline for consumers with complaints.
Some think consolidating the various governmental agencies and having a single voice with standard rules will help. But others believe that certain credit products might become more difficult to obtain or that providers will discontinue offering them due to regulatory requirements.
The new agency is wide reaching—it doesn’t affect just banks or credit card companies. The Dodd-Frank Act authorizes the CFPB to examine all sizes of nonbank mortgage companies, payday lenders and private education lenders. The agency is also seeking public input on other markets that should be included, such as debt collection, check cashing and prepaid cards.
Adding to the uncertainty of the agency’s future is that it launched without a permanent director. President Obama nominated former Ohio attorney general Richard Cordray to lead the CFPB, but he faces a tough confirmation process.
Even with all the uncertainty surrounding the CFPB’s creation and implementation, its core purpose is to make markets for consumer financial products and services work for Americans. I hope that through education with clearer disclosures and enforcement of consumer financial protection laws, the new agency will help consumers obtain the information they need to make sound financial decisions.
Kim Jenny can be reached at (615) 620-1226 or kim.jenny@pnfp.com
