Markets

What Is the Consumer Financial Protection Bureau, and How Can It Help You?

At some point in your life, you've probably had to use a financial service or product that you didn't completely understand. Although it's up to each and every one of us to act responsibly when dealing with money, the complexities of certain financial products and services can be overwhelming. And as we saw during the recent financial crisis, some service providers took advantage of this situation and profited on financially vulnerable Americans.

This is why the federal government created the Consumer Financial Protection Bureau, which is responsible for protecting American consumers from unfair or predatory treatment by financial institutions.

So what is the CFPB, and how can it help you?

What the Consumer Financial Protection Bureau is

The CFPB is a federal government agency that was created in 2011 under the Wall Street Reform Act (a.k.a. the Dodd-Frank Act), which was a regulatory response to a broken consumer credit market and the 2008 financial crisis. The Dodd-Frank Act is a lengthy piece of legislation that was basically designed to curb the risk-taking behaviors of financial institutions. The overall objective of the CFPB is to make credit products and financial services easier for consumers to understand. It aims to achieve this by clarifying the prices and risks involved with using everyday financial products and services, essentially pressuring service providers to make the fine print comprehensible.

Before the CFPB's creation, there were several different government agencies responsible for consumer financial protection in the U.S. The problem was that no single agency had the power to create rules and enforce them effectively. Under the direction of the Dodd-Frank Act, the CFPB was created through the consolidation of these different government agencies. The CFPB identifies as an advocate of the consumer and regulates entities including credit card companies, banks, credit unions, mortgage lenders, payday loan operators, debt collectors, credit reporting agencies, money transmitters, and various non-bank financial institutions.

The CFPB regularly monitors the business practices of financial-service providers in order to make sure they are operating within the law, which can be a great benefit to investors. For instance, in 2015 the CFPB filed suit against a pension company after learning that the company was engaging in pension loan scams that targeted elderly and military pensioners in particular. This lawsuit not only put an end to the alleged illegal activity, but also educated investors and pensioners on the importance of researching financial products.

In another case, t he CFPB took action against Lending Club , an online peer-to-peer platform that connects borrowers and investors, when it was discovered that customers might have been misled by certain borrower terms. Lending Club agreed to terminate the product in question and return $700,000 to customers who may have been affected.

How the CFPB helps you as an investor

The CFPB is a great source of unbiased information that can help you assess risk and make more informed decisions as an investor. The CFPB does not serve as an investment advisor, but rather as a research compiler that specializes in providing commentary and analysis on the risks of various investment products, services, and practices. For instance, the CFPB released a report that analyzed the many professional designations in the financial-advisory industry and how consumers should interpret those designations when hiring an advisor. This report shed light on the wide range of requirements finance professionals must meet in order to obtain senior designations. It also stated that no single authority has the responsibility of overseeing such designations. Based on the report, the CFPB recommended that state and federal regulators enforce higher standards for senior designations with the hope that it would help investors avoid hiring professionals who may misuse their designation.

The CFPB also allows consumers to lodge complaints regarding financial products or services they have used. You can submit complaints by calling the CFPB's consumer hotline at (855) 411-2372 or by visiting their website at www.consumerfinance.gov , where you will find all sorts of methods of making your voice heard. There is even a specially designated email address for whistleblowers looking to submit tips on violations of consumer financial laws they have witnessed: whistleblower@cfpb.gov.

While the CFPB is a great educational resource for understanding the risks attached to various financial products, as well as the impending regulation behind them, you must do your due diligence regarding your investment decisions, as they are still your responsibility. Regardless of the financial situation you find yourself in, take advantage of the resources offered by the CFPB when shopping around for different financial products and services. In never hurts to stay well informed.

The $15,978 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

The article What Is the Consumer Financial Protection Bureau, and How Can It Help You? originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More