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Consumer Financial Protection Bureau Takes Shape

This article was written by in Consumer. 10 comments.


In July, the federal government passed a sweeping new law to reform the financial industry. One of the biggest and most hotly contested aspect of this new law is the establishment of the Consumer Financial Protection Bureau. President Obama has tapped Elizabeth Warren to oversee the development of this new agency. The new director won’t be announced until 2011, but I would imagine she is at the top of the list.

Elizabeth Warren is a professor at Harvard Law School and was the chair of the congressional oversight panel investigating the financial bailout (TARP). She is known for standing up for consumers and not backing down when pressed by the banking industry.

The Consumer Financial Protection Bureau will help consumers make better decisions when dealing with financial product choices. It is destined to be one of the biggest regulatory bodies, leaving the government involved in the financial industry for a long time.

Last week, Elizabeth Warren provided some details about her plans for creating the agency. The primary focus will be credit cards and mortgages, two of the most potentially damaging financial products to a consumer. The fine print, hidden or confusing fees, and in some cases non-standardized terms, make these products difficult to navigate and compare.

Plans for the Consumer Financial Protection Bureau might change. Republicans have not been a fan of this type of industry regulation, and with the party’s newly granted majority in the House, there might be some changes ahead.

What should the role of the Consumer Financial Protection Bureau be, if it should exist at all?

Updated July 25, 2011 and originally published November 15, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar Stevedh

The Police protect the law-abiding people from the bad guys, the Firemen (and Women) protect everyone from fire and natural disasters, and government seems to be destined to protect the stupid people from themselves. However, I do see opportunity here: Creating jobs for budding Government employees who can morph into arrogant, self-serving, “experts” like the ones charged with overseeing Gulf Oil-drilling-rigs. More accurately described as patsies enjoying the fruits of their “Government Official” status and advocates of the industries showering them with perks, these chosen few will be successful at making a decent living regardless of economic stress. On the other hand – maybe the market’s performance last week has affected my mood this morning ;-)

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avatar Will @ HackingTheBank.com ♦258 (Nickel)

While I’m typically not one to argue for an expansion of government regulation, I do believe it is warranted for the financial industry. Having interned during college at one of the biggest banks in their “wealth-building” division was truly eye opening. The industry simply doesn’t have its client’s interests in mind when creating or selling financial instruments or products. Many of the marketing tactics used by the industry are predatory, making money from the very people who can least afford it. I know that some people don’t mind it when others make poor choices with their money because it makes them better off in relative terms, but I am always a proponent of financial education and I think that the industry is preying on the financial illiterate.

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avatar Stevedh

I totally agree that financial education is a must and there are those who either by choice or circumstance don’t receive it. Predatory tactics are oftentimes associated with: Risk -Based Pricing, credit insurance, failure to present the loan price as negotiable, failure to clearly and accurately disclose terms and conditions, and short-term loans with disproportionally high fees. Credit Cards, Payday Loans, Tax Refund Anticipation Loans, and the like, all fall into these categories. I just don’t agree that a nanny-state government agency is the best way to fix it. The government may reduce the fees charged for bad checks but it won’t change the habits of the people that write them – it will just make bad choices easier. Thanks to Sears & Roebuck (introducing unsecured debt circa 1940) as the genesis of VISA, MasterCard Etc. Etc. thrift is no longer a way of life. Thrift is an option – and not a very attractive one at that.

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avatar Evan

Isn’t the FTC in charge of protecting the consumer? From their website:

“As a consumer or business person, you may be more familiar with the work of the Federal Trade Commission than you think.

The FTC deals with issues that touch the economic life of every American. It is the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy. The FTC pursues vigorous and effective law enforcement; advances consumers’ interests by sharing its expertise with federal and state legislatures and U.S. and international government agencies; develops policy and research tools through hearings, workshops, and conferences; and creates practical and plain-language educational programs for consumers and businesses in a global marketplace with constantly changing technologies.

When the FTC was created in 1914, its purpose was to prevent unfair methods of competition in commerce as part of the battle to “bust the trusts.” Over the years, Congress passed additional laws giving the agency greater authority to police anticompetitive practices. In 1938, Congress passed a broad prohibition against “unfair and deceptive acts or practices.” Since then, the Commission also has been directed to administer a wide variety of other consumer protection laws, including the Telemarketing Sales Rule, the Pay-Per-Call Rule and the Equal Credit Opportunity Act. In 1975, Congress gave the FTC the authority to adopt industry-wide trade regulation rules. The FTC’s work is performed by the Bureaus of Consumer Protection, Competition and Economics. That work is aided by the Office of General Counsel and seven regional offices.”

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avatar Luke Landes ♦127,465 (Platinum)

The CFPA is designed to have more power to react to changes in the financial industry than the FTC currently has, including the ability to write regulations, and I imagine redesigning the FTC would have been more politically difficult than creating a new agency.

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avatar Evan

Just because something is difficult shouldn’t mean it should be ignored! Are they going to fire the less-powerful FTC agents?

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avatar eric ♦1,549 (Half-Dollar)

The FTC has been handcuffed for years regarding consumer protection. They basically have gone out and said that they recognize certain unscrupulous practices but can’t do anything with the regulatory powers they are afforded.

And I agree with Flexo. It’s a long and inefficient political labyrinth to navigate to fix the FTC. The CFPB is here and now and I would love to see Warren start cracking down on these companies.

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avatar OrchidGirl ♦16 (Newbie)

I am all for standardizing the language and formatting for credit cards, mortgages, and other financial documents. There is no reason why they need to be written with so much small print and confusing language. It doesn’t make someone stupid if they miss an important line buried in a 50 page document (assuming they at least tried to read it) – it makes the creators for the document deceptive. Transparency for the consumers is generally a good thing. I would love it if I could review all the terms and policies type paperwork associated with a credit card in under 10 minutes and know exactly what I was getting into.

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avatar KNS Financial ♦404 (Nickel)

They already have more oversight committees and agencies than we can count. Just organize what’s already there and make them more effective. Why waste money and other resources starting something else from scratch?

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avatar wylerassociate ♦162 (Cent)

I am in favor of this CFPB if it helps hold banks accountable but americans have to hold up their end of the bargain as well. People need to become more financially literate and understand that it’s critical to live within your means.

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