A new government agency has been causing controversy on Capitol Hill. Formed in July 2010 under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) aims to educate and protect consumers from unlawful financial practices. The bureau’s most recently proposed legislation would broaden their scope of regulation to include collection and credit firms. This drafted rule is just one step in an ongoing contentious battle behind the bureau, involving policy makers, banks and the American public.
New Sheriff in Town:
The CFPB Sets Its Sights on Collection and Reporting Agencies
Taking over many duties of established federal trade regulation agencies, the CFPB places financial firms under strict surveillance. Consider the CFPB the government’s watchdog, or as it calls itself on the official website, “the neighborhood cop.” Through supervision, the CFPB hopes to prevent firms from misleading consumers into risky loans, mortgages and credit card agreements. The proposal for the bureau’s creation caused almost immediate uproar, which the New York Times characterized as a conflict between the Obama administration for the bureau and Republicans and banking lobbyists against its creation.
The draft rule
While banks and the stock market have long been under federal regulation, the bureau marks the government’s first branch into other parts of the financial industry. In a rule recently proposed this February, the CFPB would expand its jurisdiction to include debt collectors and credit reporting firms. Debt collection companies worth over $10 million (about 175 firms, reports the NY Times’s Dealbook) and credit reporting agencies worth over $7 million would be subject to ongoing scrutiny by the CFPB. This legislation would affect 30 companies, says the New York Times, including the top three firms Experian, TransUnion and Equifax. Credit agencies are meant to provide accurate credit histories, which heavily affect a consumer’s access to favorable loans. CFPB supervision would work to ensure that credit agencies are not skewing the data to benefit the lending firms at the expense of the consumer. Under these conditions, the CFPB would be able to regulate over 60 percent of the debt collection market and more than 90 percent of credit reporting services.
Democrat Barney Frank, Chairman of the House Financial Services Committee, was reported in the NY Times declaring that “[a]nyone who thinks we’re not going to create this agency is mistaken. The American public wants it.” In fact, 57 percent of people polled would support the creation of a federal agency that regulates the financial market, according to consumer reports. In general, Americans want more transparency in the financial market, as a whopping 89 percent of people polled support requiring banks to report mortgage fees upfront and 85 percent supported requiring banks to disclose ATM fees. In pursuit of this transparency, over 200 consumer agencies rallied to support the bureau’s creation, reports the Huffington Post. Kathleen Day, a spokeswoman for the Center for Responsible Lending, is quoted in the article stating that the proposed agency “provides strong federal insight, but it also restores the ability of the states to enforce strong consumer protection laws.”
Large banks, including JPMorgan Chase and Wells Fargo, small banks, mortgage lenders and financial institutions across the country oppose the CFPB, arguing that the new regulations will affect their viability as banks. The American Bankers Association has come out as one of the staunchest opponents to the CFPB. A published statement from the ABA argues that “the Dodd-Frank Act erected a Bureau that divides consumer protection regulation from safety and soundness supervision,” which is meant to make sure that banks remain viable. The letter also described a proposed review process as “cumbersome.”
CFPB in the future
The CFPB is continually examining important aspects of the finance industry. In the near future, the CFPB plans to investigate banks’ overdraft practices, as credit card companies and credit unions made over $38 billion from overdraft fees, reports Bloomberg News. The CFPB is also exploring a standard form for mortgage payments and greater consumer awareness for financing a college education.