Yesterday was the official launch date of what could prove the
most influential and lasting legacy of the financial crisis and
market meltdown. The question everyone's asking, though, is whether
it's actually going to help the people it's supposed to protect --
and what will happen next in its short but storied history.
The Consumer Financial Protection Bureau quietly took its place
among regulatory agencies on Thursday, as the Dodd-Frank act had
listed July 21 as its start date. Of course, the CFPB has made its
presence felt for months, as its website went live back in
February, and special advisor Elizabeth Warren has been hard at
work launching various initiatives; bringing together experts from
the financial industry, consumer groups, and academics to look at
the impact of regulation thus far; and releasing reports on credit
and the building of the CFPB.
What the CFPB will cover
As currently envisioned, the CFPB has the potential to have truly
massive scope. The coverage area of the CFPB includes many
different categories of financial services and companies that
provide them, such as the following:
- Larger banks and credit unions, from top market-cap bank
) down to any institution with at least $10 billion in
, with an impact on card networks like
) as well as card-issuing banks such as
- Debt collection companies.
- Debt relief services.
- Student loan companies such as
- Mortgage brokers -- but only those at banks above its $10
billion coverage line.
- Credit bureaus
(EFX) , and TransUnion.
- Payday lenders such as
Unfortunately for both consumers and businesses, it's unclear
exactly how much power the bureau will have and exactly what the
CFPB intends to accomplish. Some lawmakers believe that the CFPB
has too much power and not enough accountability, and therefore
they want to rein in its enabling legislation to limit those
For now, the CFPB is waiting to have a director named. Former
Ohio Attorney General Richard Cordray has been nominated to fill
the position, but the Senate must confirm Cordray before he can
formally take the position and start to exercise many of the CFPB's
What to expect
As a consumer, you can expect the CFPB to serve the useful purpose
of being a
focal point for troubles or concerns
you have about financial products. If the bureau serves its
purpose, then painfully long, incomprehensible contracts,
disclosures, and other financial documents could get easier to
understand -- or at least come with simpler explanations. Adapting
to new regulations could cost financial businesses in the short
run, but hopefully, they would prevent costly litigation and other
disputes that stem from bad contracts now.
On the other hand, financial businesses have threatened that
overregulation could lead to their having to shut down certain
parts of their business. That's most especially the case for payday
lenders, which serve a population of customers that most other
financial businesses shy away from.
argue that their fees are justified in light of the high risk that
they take, and that caps on those fees could make it impossible for
them to turn a profit. That would potentially leave a void in
financial coverage -- one that
more unsavory options
A new dawn
Perhaps the most important benefit of having the CFPB will be that
consumers can stop worrying about how to navigate the complicated
set of regulatory agencies at the federal, state, and local level
that govern various financial institutions.
If the CFPB can end up acting as a consumer advocate within the
government's bureaucracy -- much as the Taxpayer Advocate does for
taxpayers dealing with the IRS -- then it will already have
performed a valuable service for everyone. As for what else the
CFPB may end up doing, a lot will depend on whether Congress
changes the rules. You'll want to keep your eye on happenings at
the CFPB to see how the new bureau evolves in the months and years
What do you think? Will the CFPB be the next great thing or just
another government flop? Spill your views with a comment below!
hopes the CFPB will do better than the mass of other
regulators already out there. You can follow him on Twitter here.
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