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— Didn’t we learn anything from the financial meltdown? Individual consumers cannot protect themselves from lenders that are willing to use predatory practices to boost profits. Reputable businesses cannot compete when competitors don’t play by the same rules.
The financial markets need a strong regulator, one that can take decisive action against bad actors. This is good for everyone.
It took a terrible recession to teach us an important lesson: Without proper regulation, financial markets can devastate the economy and hurt us all. Congress vowed this would never happen again, so last year it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law created the Consumer Financial Protection Bureau.
The bureau, which officially opens for business July 21, will be empowered to protect the American consumer from unfair, deceptive or abusive practices. As envisioned by Dodd-Frank, the Consumer Financial Protection Bureau (CFPB) will:
It’s hard to see what can be wrong about any of that, especially after well-documented abuses of the system brought the world’s largest economy to the brink of disaster.
Yet Republicans in Congress have never liked the idea of creating this new agency. They believe it is unnecessary and way too powerful. They’ve introduced a series of bills designed to muzzle this watchdog.
In a statement last week, Elizabeth Warren, the Harvard law professor President Obama tapped to create this consumer agency, said the bills are designed to "defund, delay and defang the consumer agency before it can help one family."
"These bills are about preventing the CFPB from operating effectively — a dangerous game to play in light of recent lessons in the marketplace and how quickly financial threats to consumers emerge,” she said.
Consumer groups across the country have launched a full-scale counterattack against the proposals.
"This agency will simply make sure costs and risks are presented clearly, so each of us can make smart financial choices,” says Ruth Susswein of Consumer Action. “Why should this be so threatening?”
“A vote to roll back this consumer protection bureau is a vote for the kind of predatory lending that got us in this mess and cost taxpayers so much,” says Kathleen Day with the Center for Responsible Lending. “It will make the recovery take longer, and we will end up with another bubble and bust.”
“Consumers are still dealing with financial tricks and traps even after Congress passed financial reform last year,” notes Travis Plunkett, legislative director at the Consumer Federation of America. “So we need a consumer protection bureau more than ever, to provide a cop on the beat to help consumers.”
Consumer advocates are also taking on the financial institutions that want the CFPB weakened.
“The banks do not want a regulator that is truly independent and has only one job, protecting consumers,” says Ed Mierzwinski, consumer program director at U.S. PIRG.
“Businesses that are playing by the rules and being fair to customers will benefit from the work that the bureau will do,” says Sally Greenberg, executive director of the National Consumers League. “Anybody who is trying to pull a fast one is not going to do so well, and that’s as it should be,” she says.
“Reputable banks and reputable business people have absolutely nothing to fear from this agency,” says Ellen Bloom with Consumers Union, the publisher of Consumer Reports. “We just want to give the consumer an even shot and get back to clarity and simplicity and make things less confusing for them.”
People are confused. Consumer Reports conducted a national poll about financial services last year. An overwhelming majority (84 percent) of those responding said they had applied for a loan or credit card in the last 12 months and had some difficulty in understanding the terms of what they were signing.
The CFPB wants the new standard to be: a simple and straightforward presentation of information that tells people the true cost of financial products and what the risks are.
Just last week the agency proposed simplified mortgage disclosure forms. These prototypes are shorter and easier to understand than forms given to potential borrowers now.
Warren says a clear and simple disclosure form will help people decide if they can afford the loan and make it easier for them to shop around for a better deal.
The CFPB wants consumers and lenders to comment about these disclosure forms on its website.
Solving problems
The Consumer Financial Protection Bureau plans to set up a system to accept consumer complaints and publish them on its website. The Consumer Product Safety Commission and the National Highway Traffic Safety Administration have similar complaint databases.
The CFPB would use this information to answer questions, try to help people solve their problems and use the complaints to take action against those who are not following the law.
“One of the beauties of this agency is that you will not just send in your complaint and hope that someday the agency will sue a company for its wrongdoing,” notes Ruth Susswein with Consumer Action. “It actually has to respond to consumer complaints. It has to interact with people and not just collect complaints and that will be huge.”
My two cents
The last Congress created this agency and the new Congress needs to give it a chance. I’d ask lawmakers to consider the words of Jamie Dimon, chairman and CEO of JP Morgan Chase. In his April report to shareholders Dimon wrote, “Strong regulatory standards, adequate review of new products and transparency to consumers all are good things.”
