This Thursday, the Consumer Financial Protection Bureau begins its official oversight duties.
The CFPB is one of the big components of the Dodd-Frank financial reform bill that was passed by the Democratically-controlled Congress in the wake of the recession. Over the weekend, I read a terrific feature in Bloomberg Bussinessweek
about the implications of CFPB.
The new bureau essentially pools the powers of several regulatory agencies into one group, with the primary purpose being to protect against predatory lending practices. It appears one of the first objectives will be to simplify and condense the paper work that comes with securing a home loan.
I can get on board with simplified loan documents. However, a few other points concern me. According to the article, to date most of the new hires are young number crunchers. Without really saying it, I gleaned there may be some disagreement on what constitutes predatory lending from the standpoint of a 27-year-old MBA grad with a $50,000/year job versus a minimum-wage 40-year-old with three kids.
It’s no secret the “buy here, pay here” car dealers make their money by financing cars at extremely high interest rates. They take a massive risk on folks with bad credit; and they expect to be rewarded for assuming that risk. While 20% may seem predatory, what option do folks with bad credit have? I guess they could take the bus, but what if they have to be at work when the bus doesn’t run.
I’m all for simplifying and clarifying the terms of lending. However, as a consumer, I’d like to retain the right to determine what is predatory lending. If the rate seems too high, I’ll either go elsewhere or find an alternative means of financing. Understanding the folly of locking in a minimal monthly payment for the sake of a higher interest rate should be the consumer's responsibility.
Perhaps even more alarming was the article’s discussion on the CFPB’s willingness to be transparent in all endeavors. In the very next paragraph, the author notes the CFPB was not willing to discuss the punishment the CFPB will deal out if it finds a lender is out of line. Sounds pretty opaque to me.
Check out the CFPB website at www.consumerfinance.gov
. I see a lot of attempts to make this site “cool.” There are links to social media and a blog. The chart on the agency’s hierarchy is also a nice touch. It really makes me feel like I’m familiar with the CFPB’s inner workings.
Still, I’d really like a better understanding of the power CFPB wields. If they truly are an advocate for the consumer, shouldn’t the consumer know in advance what they are going to say on their behalf?
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