Consumer Financial Protection in the United States

Consumer Finance Services

Note: Some information about the consumer finance services and interstate commerce commission are available here.

Consumer financial services providers face an increasingly complex regulatory landscape in the United States, specially with the advent of the Consumer Financial Protection Bureau and its supervisory and enforcement authority.

Consumer finance legal services include and involve the following class actions and other lawsuits:

TILA, HOEPA, ECOA, FCRA, FDCPA, RESPA, and EFTA compliance
Claims of credit discrimination and reverse redlining
Marketing and advertising practices
Enforcement of arbitration provisions in consumer credit contracts
Challenges to interest rates, fees, and other contract terms
Compliance with the gamut of federal and state consumer financial services laws, including challenges to providers’
Privacy issues
Insurance issues
Claims against spurious arbitration companies and fraudulent debt management companies

Consumer finance legal services also include:

Developing new or complex financial services products
Commercial agreements with third parties
Compliance with state and federal UDAAP statutes that prohibit unfair and deceptive acts and practices
Pricing and design of credit products, including secured and unsecured loans
Credit cards, home equity lines of credit, and other open-end products
Retail installment sale agreements, consumer leases, and layaway agreements
Government-insured and private student loan programs and related tuition payment plans
Higher risk niche products, typically directed to subprime customers, such as tax refund anticipation, payday, and auto title loans, as well as rent-to-own and pawn agreements
Payment card products, including payroll and other stored-value cards and gift cards, as well as more traditional deposit products and certificates
Credit insurance products and debt cancellation and suspension products
Use of the Internet and electronic payment systems in the delivery of financial services
Federal preemption, Commerce Clause, and conflict of law issues
Pre-dispute arbitration programs, including consumer-friendly programs in the market today
Advertising and marketing requirements
Consumer agreements and disclosures
Due diligence of issuers and portfolios
Privacy, data mining, credit reporting, and debt collection practices
Delivery of financial services through social networking and mobile phone technology
Electronic records storage and electronic delivery of credit-related disclosures

The Consumer Financial Protection Bureau (CFPB)

The Consumer Financial Protection Bureau was created to make sure that the financial products and services that Americans depend on every day —including credit cards, mortgages, and loans—work better for the people who use them.

Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Consumer Financial Protection Bureau is charged with overseeing the Federal financial laws that specifically protect consumers—people who keep their money in banks and credit unions, pay for goods and services with their credit cards, and rely on loans to buy homes or pay for college, among other services.

The Consumer Financial Protection Bureau is tasked with making sure people understand the fine print that explains the risks involved in using these services, and ensuring the banks, credit unions, and other financial companies that provide them play by the rules.

The need of a Consumer Financial Protection Agency

Before the Consumer Financial Protection Bureau was established, seven different Federal agencies were responsible for various aspects of consumer financial protection. No single agency had effective tools to set the rules or oversee the whole market, and that is part of what led to an economic crash of epic proportions. As President Obama explained in his speech in Osawatomie:

“We all know the story by now: Mortgages sold to people who couldn’t afford them, or sometimes even understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets – and huge bonuses – made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.

Moving forward, the Consumer Financial Protection Bureau will be the single, consumer-focused regulating authority, consolidating the existing authorities scattered throughout the Federal government under one roof. And, the Bureau’s oversight includes the large banks and credit unions that had historically been regulated by the Federal government, as well as independent and privately owned “non-bank financial institutions” that had never been regulated before.

This means that for the first time, the Federal government will be able to regulate the activities of independent payday lenders, private mortgage lenders and servicers, debt collectors, credit reporting agencies, and private student loan companies.”

CFPB Regulations: Regulation of the so-called non-bank financial institutions

Non-bank institutions offer important services like access to credit and access to payment systems for many people who are unable to rely on banks. But, these entities haven’t typically been subject to Federal supervision, and providers are often less clear about costs, terms, and penalties than better-regulated alternatives. As a result, hidden fees and undisclosed fines can make these services more expensive for the people who use them.

Regulating these industries will restrict the use of unfair, deceptive, and abusive practices against consumers and ensure providers offer clear, upfront information about the rights and responsibilities of the people who depend on them.

Not regulating these providers, on the other hand, is bad news for individual consumers, many of whom are already financially vulnerable.

For example:

Nearly 20 million Americans use payday lenders. Studies have found that payday lenders charge their clients, on average, $16 for a $100, two-week loan—a 400 percent annual percentage rate. If borrowers miss payments they begin to accumulate huge penalty fees and can fall into a debt-and-fee spiral that may be hard to escape, and end up with even fewer funds to pay for essentials.
In the run-up to the financial crisis, unregulated, non-bank lenders were among the largest originators of subprime mortgages. The default rate on subprime mortgages issued in 2006 now exceeds 50 percent.
Nearly 50 percent of claims made against debt collectors cite harassment. Currently there is about $1.2 trillion of delinquent consumer debt, and many people who fall behind on their debt payments lack the resources to protect themselves from predatory collection behavior, which can lead them to make financial decisions without having all the facts.
One in five Americans over the age of 65 has been the victim of a financial scam.
Twenty-nine percent of young people between the ages of 22 and 29 report delaying or not pursuing further education because of their debt.

Consumer Financial Protection Bureau Tools

The Wall Street Reform Act gave CPFB a wide array of tools to promote fair, transparent, competitive markets.

CFPB’s duties fall into three main buckets (see more below):

Education
Enforcement
Research

Education

The Consumer Financial Protection Bureau provides financial education to consumers and ensures people are able to get the information they need to make sound financial decisions.

A fair, efficient, and transparent market depends upon consumers’ ability to compare the costs, benefits, and risks of different products effectively—and to use that information to choose the product that is best for them. Fine print and overly long agreements can make it difficult for consumers to understand and compare products.

Enforcement

Like a cop on the beat, the Consumer Financial Protection Bureau is responsible for rule-making, supervision, and enforcement of Federal consumer financial protection laws and restricting unfair, deceptive, or abusive acts or practices against consumers.

No provider, regardless of size or type, should be able to build a business model around a set of practices that target consumers unfairly. With consistent rules that apply across the marketplace, consumers receive strong protections regardless of whether they deal with a bank or a nonbank financial company.

Research

The Bureau also takes consumer complaints, researches consumer behavior, and monitors financial markets for new risks to consumers.

Monitoring financial institutions and analyzing how people respond and interact with them gives the Consumer Financial Protection Bureau more information about hazards consumers encounter when dealing with various companies and entities and also provides a comprehensive look about the health of the entire system.

Prior to the passage of the Wall Street Reform Act (LINK), no single agency had effective tools to establish standards for and oversee the whole market, and consumer financial protection was no one’s top priority. The result was a system where no one was sufficiently accountable for getting the job done. We saw the outcome of this structure—both in the 2008 financial crisis and in its aftermath.

Progress of the Consumer Finance Protection Bureau

Among the Consumer Financial Protection Bureau’s many accomplishments during its first year, the Bureau introduced three “Know Before You Owe” campaigns focused on redesigning the materials people use to make decisions about mortgages, student loans, and credit cards.

Know Before You Owe: Mortgages

When people take out a loan to purchase a home or refinance their mortgage, they receive two key disclosure forms that explain the final terms and costs of the loans.Unfortunately, the technical and legal jargon used in these forms may be more confusing than helpful. Complicated and lengthy disclosures can make it hard to answer or even ask the right questions. Many buyers don’t know what they don’t know until it’s too late.

The Consumer Financial Protection Bureau launched Know Before You Owe to replace these two forms with one disclosure that is easier to use and understand. Throughout the process, the Bureau solicited feedback on their web site about how to make the form as clear and simple as possible.

Know Before You Owe: Student Loans

The increasing cost of higher education, the financial crisis, and continuing tough economic times mean that more students will rely on loans to pay for tuition and make ends meet while in school. Students should be able to understand the costs, risks, and benefits of the loans they will use to help pay for the educations.

The Consumer Financial Protection Bureau created a sample financial aid shopping sheet as an example of how schools might improve the information they present to prospective students and their families that helps them better understand available financial aid options and repayment costs.

The shopping sheet is only a “thought starter” and the Consumer Financial Protection Bureau is asking for feedback on how to best present the information students and their families think is most important. Check out the sample and let the Consumer Financial Protection Bureau know what you think here.

Know Before You Owe: Credit Cards

Credit cards are the most commonly used form of consumer credit. Almost two out of three families now have at least one credit card, and almost half of all families carry a balance.

To help the millions of Americans who use credit cards better understand their card agreements, CFPB developed a prototype shorter, simpler credit card agreement that clearly spells out terms for the consumer.