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The CFPB and what it means to consumers

With the lofty goal of protecting all consumers who borrow money, the Consumer Financial Protection Bureau was established last year as part of the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act.

The need for increased consumer protection became apparent after the 2008 financial crisis, caused by subprime lenders giving millions of home loans to high-risk and unverified borrowers. The lending practices, unchecked and ignored by federal regulators, led to billions of dollars in bank bailouts, millions of foreclosures and a financial crisis that we’re still dealing with today.

So what is more bureaucracy going to do about it? Under the banner of protecting the consumer from shoddy and/or abusive financial practices, the CFBP has aims to regulate banks and other financial institutions, promote a transparent and fair market and in the process, increase consumer confidence in the lending institutions the nation’s economy depends on. To be exact, their goals (taken directly from their website) are as follows:

The CFPB's Statutory Objectives

  1. To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions;
  2. To protect consumers from unfair, deceptive, or abusive acts or practices, and from discrimination;
  3. To reduce outdated, unnecessary, or overly burdensome regulations;
  4. To promote fair competition by enforcing the Federal consumer financial laws consistently; and
  5. To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.

What are they doing now? They’ve made efforts to improve mortgage disclosure (including combining the two federally required disclosure forms into one, simplified and understandable form), analyzed data one year after the Credit CARD Act and determined where changes still need to be made, opened up communication between banks, lenders and consumers and released reports vying for their existence as an agency. With their new director, Richard Cordray, they have big plans for regulating non-bank lenders, including those that provide predatory practices like payday lending.

The CFPB doesn’t have unanimous support. Some argue more regulation and bigger government will continue to bog down the economy, and others believe the bureau doesn’t have enough oversight. The agency struggled for over six months to get Cordray confirmed as their director, while Republicans argued the agency would be better served if lead by a board. This political impasse has been a huge weight on the CFPB’s progress. The hoops it has had to jump through to fight for its very existence have only slowed things down, and only time will tell the breadth and nature of its impact.

Regardless of whether the bureau will effectively provide the consumer protection they claim, their mission statement is something most any American can stand behind:

“Above all, this means ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families—that prices are clear up front, that risks are visible, and that nothing is buried in fine print. In a market that works, consumers should be able to make direct comparisons among products and no provider should be able to build, or feel pressure to build, a business model around unfair, deceptive, or abusive practices.”

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