After the housing bubble left legions of homeowners with mortgages they couldn't pay, it seemed like there should be a way to stop this from happening again in the future.
Enter the Consumer Financial Protection Bureau.
While it doesn't have quite the ring of "Superman," this federal agency was established in 2010 not only to prevent risky mortgage practices but also to stop banks from issuing misleading credit card forms.
The problem is, technicalities and political wrangling stopped it from having real teeth. Until last Wednesday.
That day, President Obama appointed Richard Cordray, a former Ohio attorney general, as the bureau's director. To do so, he bypassed the Senate, which was in recess. Subsequently, there's a tiny chance the appointment could be derailed, but it's unlikely. Based on Mr. Cordray's reputation of aggressively investigating the practices of mortgage foreclosures (during his time as attorney general, he sued GMAC Mortgage and Ally Financial over foreclosure practices), his appointment could bring good things to financial regulation.
The CFPB, which was formed with the passing of the Dodd-Frank Bill (more on that here), will regulate what are called "nonbank financial companies," namely lenders, money transfer agencies, debt collectors and credit bureaus. The agency will also serve as a place for consumers to voice their complaints about—and suggestions on—improving credit cards, student loan debt, mortgages and more.
The upshot is that this should help not only you but also the economy as a whole.
The Duties of the CFPB
Mr. Cordray and the CFPB are looking to eliminate financial stressors such as unaffordable, predatory student loans and other debt burdens, fraudulent lending practices and foreclosures due to unclear mortgage loans. According to The New York Times, "The consumer bureau focuses on 'unfair, deceptive or abusive' acts or practices in products like private education loans and prepaid charge cards and at companies like mortgage servicers, which have come under harsh criticism for their foreclosure practices since the housing bubble burst."
The bureau has already begun reviewing mortgage lending and consumer banking fees by assigning regulators to many of the country's largest banks. Mr. Cordray will be able to influence banking policy directly as well, as his appointment also makes him a member of the board of the Federal Deposit Insurance Corporation, which works to keep the banking industry stable and consumers confident in that stability.
What He Had to Say
In a blog post, the new director said, "Most of the nonbank financial companies had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers."
By saying so, he means that before the crisis, companies using shady business practices were able to appeal to unaware consumers with their accessibility and low prices. Companies operating by the book, such as community banks and credit unions, were unable to compete.
What the Bureau Will Do for You
When we think of an agency fighting for consumers, the Better Business Bureau (BBB) comes to mind. The BBB is a private, nonprofit organization that facilitates communication between businesses and consumers in order to promote honest advertising and selling practices. Basically, they'll advocate for you when a store won't refund your purchase of a damaged good or you're charged for something that wasn't delivered. The BBB accepts and investigates consumer complaints and keeps public records of a business's behavior.
The CFPB also provides an outlet for complaints: Two clickable buttons on the CFBP homepage allow consumers to report either mortgage or credit complaints. The agency will ask for the details of the complaint, whether you've contacted the offending company directly and what sort of resolution you seek. The bureau passes the info along to the offender, who presumably gives a complaint more consideration when it has a government agency behind it. You can also request to receive email updates on a complaint you've filed.
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In short, this is the place to go when you feel that your mortgage lender or credit card company has wronged you. The bureau is also looking for consumer feedback on credit card applications and mortgage loan disclosures, which you can submit through the site.
The CFPB operates on a larger scale than the BBB, influencing regulatory policy and potentially making entire industries more accountable to the consumers they serve. Most notably, unlike the BBB, the CFBP has the power to legally enforce its decrees.
Theoretically (and our reservations come from the slight possibility that Mr. Cordray's appointment won't stick) you could be facing more consumer-friendly, responsible mortgage and credit card applications in the near future.
With an agency devoted to monitoring institutions formerly regarded as the Big Bad Wolf of our recessionary fairy tale, we finally have an advocate. And with the appointment of Mr. Cordray, the bureau can start advocating.
Keep an eye out—changes are afoot.