In the financial services legislation being considered by Congress, of greatest interest to consumers is the creation of a new Consumer Financial Protection Bureau. This new bureau would provide transparency and fairness for consumers when they take out a loan, use a credit card, or get a mortgage. The CFPB would oversee financial products and services like the Food and Drug Administration oversees the safety of our food and drugs. It would ensure that products are fair, sustainable, and suitable to borrowers. The bureau would focus on protecting consumers by ridding the market of the tricks and traps that have ensnared so many customers of banks and other for-profits.
The financial crisis demonstrated the great need for a watchdog with a sole mission to protect consumers in their dealings with for-profit financial institutions. Helping to precipitate this financial crisis was the many Americans who were duped into mortgages that they didn't understand and couldn't afford. Some states tried to rein in these abuses perpetrated by both banks and non-banks but were blocked when federal regulators preempted much of their authority. In fact, if efforts in those states to stop predatory mortgage lending had been successful, there is a good chance that the housing and economic crisis we are in would not have been so damaging.
As outlined in the legislation, the CFPB's purpose is to implement and enforce federal consumer financial law to ensure that markets are fair, transparent and competitive. The CFPB would ensure that consumers are provided with timely and understandable information to make responsible decisions, are protected from unfair, deceptive, or abusive acts and practices, and from discrimination. The CFPB would also be tasked with reducing unwarranted regulatory burdens by identifying regulations that are outdated, unnecessary or unduly burdensome. It is charged with finding ways to streamline regulations and reduce regulatory overlap, which will be helpful to both credit unions and their members as they deal with the paperwork involved in getting a mortgage or other type of loan. The CFPB would work to ensure that markets operate transparently and efficiently, which will benefit consumers, lenders, and ultimately, our entire economy.
There is a lot about this new bureau and this bill for consumers to like and they do support it. The Consumer Federation of America commissioned a survey in April which found that 62% of respondents supported "the creation of a new federal agency to protect consumers who purchase banking and other financial services," while 34% opposed it. CFA also asked whether "you believe that consumers need more effective protections against unfair and deceptive practices by banks and other financial institutions?" Eight-five percent of the sample agreed that consumers need better protections, and only 13% disagreed.
The CFPB would help to level the playing field for the offering of financial products and services. The bureau would be able to stop the race to the bottom in which too many banks and non-banks gouge consumers for every penny, like credit card companies, or trap them in a cycle of debt, like payday lenders. By clarifying the rules of the road, consumers will be able to navigate the financial services marketplace with better information and the ability to make better decisions.
The new Office of Financial Literacy would help consumers to be better informed. It would develop and implement initiatives to educate and empower consumers to make better informed financial decisions. Among other duties, this office would provide information to assist consumers in evaluating credit products and would help them understand their credit histories and scores as well as to develop long-term savings strategies.
The bureau is also charged with collecting and tracking consumer complaints. The CFPB would establish a single, toll-free number, website, and database to facilitate the collection, monitoring, and response to consumer complaints. CFPB's research office would investigate, analyze, and report on market developments, including market areas of alternative products and services with high growth rates and areas of risk to consumers; access to fair and affordable credit for traditionally underserved communities; consumer awareness, understanding, and use of disclosures; and consumer understanding and awareness of costs, risks, and benefits of financial products and services.
The legislation also places restrictions on prepayment penalties for mortgages, requires that mortgage lenders ensure that home loans are affordable to the borrower, and prohibits steering consumers into unaffordable loans. Had these restrictions been in place two years ago, our nation's housing market would surely be in much better shape than it is today.
Finally, CFA was disappointed that the bill did not include CFPB oversight for auto dealers that are loan brokers or creditors. Unfortunately, the auto dealer lobby was powerful enough to convince members of Congress that they should not come under CFPB jurisdiction even though both banks and credit unions, the main competitors to the dealers for auto loans, will be covered. The bill, however, did acknowledge concerns about these lenders by granting the Federal Trade Commission expedited rulemaking authority over auto dealer-lenders.
A strong, independent CFPB would increasingly help ensure that the financial services marketplace is more transparent, less exploitive and friendlier to consumers. We believe that this marketplace would also increasingly be friendlier to financial services providers, including all credit unions, that are striving to meet the needs and wants of consumers.
Susan K. Weinstock is director of the financial reform campaign ?for the Consumer Federation of America. She can be reached at 202-939-1013 or sweinstock@?consumerfed.org