This week’s election was a cliffhanger for many people, but the stakes were higher than most for the director and staff of the Consumer Financial Protection Bureau. The agency, which opened its doors in July 2011, was a lightning rod for Republican criticism of how the Obama Administration and a Democratic-led Congress responded to the financial crisis. During the campaign, Mitt Romney had promised that, if elected, he would repeal the Dodd-Frank financial reform legislation that called for the CFPB’s creation.
Although Governor Romney spoke about the need for financial oversight during his first debate with President Obama, he expressed discontent with the current regulatory framework. He has plenty of company in his party; Republican lawmakers agitated for changes to the CFPB’s structure since it was developed by Massachusetts Senator-elect Elizabeth Warren.
Warren was initially considered a shoo-in for the role of director at the CFPB, but Republican backlash prompted President Obama to choose someone considered less controversial: former Ohio Attorney General Richard Cordray, who rose to prominence for his campaign against the foreclosure robo-signing fraud.
Nevertheless, GOP senators held up the appointment of Cordray as CFPB director. Cordray eventually was appointed by President Obama in a controversial recess appointment last winter, a move that gave the CFPB the authority to oversee non-bank financial institutions like credit bureaus and payday lenders and do more in the way of rule-making and enforcement.
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The lawmakers who object to the CFPB, along with the banking industry, said it had too much autonomy; they wanted the agency to have its budget controlled by Congress rather than by the Federal Reserve. They also wanted to see it led by a committee rather than a single director. Consumer advocates said both moves would water down the agency’s authority and make it more like existing regulators — the ones that were unable to stop the financial crisis from happening.
Since Cordray took the reins, the CFPB has acted on behalf of the little guy on several different fronts, and has more of the same on its agenda for 2013 and beyond. Here’s a snapshot of what’s likely coming from the agency:
Up next on the CFPB’s to-do list is drawing up mortgage rules that deal with issues like the transparency of loan origination, and standardization of mortgage statements. Later this year, it plans to write additional rules addressing closing costs and good faith estimates.
The CFPB has already been aggressive going after credit card companies over deceptive marketing practices. The agency fined Capital One, American Express, and Discover a total of $435 million, which the companies collectively must use to reimburse roughly 5.75 million consumers, plus an additional $101.5 million in penalty fees. This is good news for the roughly 5.8 million people who were lured into buying “credit protection” or a similarly useless product.
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The CFPB also collected and published a roster of consumer complaints against credit card companies. This gives people a way to gauge whether or not a card they have or are considering is likely to be a good fit or just a giant headache. Banking analyst Ken Thomas ran the numbers and found that SunTrust tops the gripes list, while USAA has the fewest consumer complaints in proportion to the size of its customer base.
Since companies like debt collection agencies and credit reporting bureaus aren’t banks, they hadn’t been subject to any federal-level oversight prior to the CFPB’s launch. In August the CFPB announced a rule defining larger participants that will be subject to oversight in the credit-reporting arena. Identifying the big players will let them start examinations of the credit bureaus for the first time. More recently, it did the same thing for debt collection companies, announcing a rule that would let the agency define the market’s larger participants in order to oversee them.
CFPB regulators also are taking a hard look at banks’ overdraft fees and the policies used to implement them. A 2010 rule from the Federal Reserve banned the common practice of signing up customers automatically for overdraft programs, so that only customers who opted out wouldn’t have to worry about the possibility of incurring a fee when a debit transaction went through even if the account didn’t have a sufficient balance to cover it. Changing debit card overdraft protection into an “opt-in” service has helped, but banks still raked in more than $30 billion in overdraft fees last year. That got the CFPB’s attention. It’s now conducting a study of how banks’ policies and procedures affect how much and how often customers wind up paying overdraft fees.
Prepaid Debit, Private Student Loans
These rapidly growing segments of the financial market fall outside the scope of other regulators’ coverage — and the CFPB says it’s interested in overseeing them to ensure consumers aren’t being taken advantage of. In the case of increasingly popular prepaid debit cards, the big players in the industry voluntarily follow the rules established for account-affiliated cards, but the terms and conditions vary widely, and there aren’t any established standards like the ones the CARD Act instilled on credit cards in 2009.
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Private student loans are a growing problem for many new graduates, especially those struggling to find a job in this economy. In collaboration with the Department of Education, the CFPB put together a report on private student loans that was presented to Congress; it highlights issues like the inability to discharge these debts in bankruptcy and the high default rates. The CFPB says this market will be the focus of “ongoing supervisory, enforcement, and policymaking efforts.”