The Consumer Finance Protection Bureau (CFPB) is a federal agency dedicated to consumer protection and awareness. Created in 2010, this fairly young federal agency is on its way to becoming a big player in the financial market. Here is a short introduction to the CFPB:
The bureau was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act — legislation geared toward financial industry reform. According to the CFPB website, the agency was created in part due to irresponsible credit industry practices and “widespread failures in consumer protection.” The CFPB was created to prevent future gaps in consumer protection, regulating large-scale financial industries and ensuring that borrowers benefit from clear-cut loan terms.
The CFPB is a regulatory agency, akin to the Securities and Exchange Commission.
As a new venue for federal oversight, the CFPB takes over a number of roles traditionally assumed by other government agencies, including the Federal Reserve and the Federal Trade Commission. For example, the CFPB will now supervise mortgage markets that were regulated by the Department of Housing and Urban Development (HUD).
The CFPB supervises consumer financial service companies, such as banks, credit card issuers, debt collection agencies and mortgage, lease and student loan providers. With the help of bank examiners, the bureau will safeguard against violations of consumer financial protection laws. Many companies will not fall under the jurisdiction of the CFPB, including auto dealers and real estate agencies.
The CFPB is also meant to educate consumers about debt practices like common loan terms and repayment plans. The agency, likewise, aims to create transparency within financial industries. For example, the CFPB may require banks to state any checking overdraft fees up front, as opposed to burying the added costs in fine print. Moreover, the agency studies consumer spending patterns and identifies potential threats to consumers in emerging finance practices. In addition to researching consumer habits, the CFPB hopes to directly discuss with consumers about their needs. Individuals can register suggestions or complaints regarding unfair loan practices right on the CFPB website.
“Know Before You Owe”
The CFPB has launched the “Know Before You Owe” effort to streamline mortgage disclosure forms, in hopes of combining consumer education and transparent lending practices. Upon closing a loan, bankers were federally required to provide borrowers with disclosure forms, which clearly stated the terms and costs of the loan.
These two forms have increased transparency but may still be cumbersome for the average consumer. The CFPB is designing a new form, meant to provide consumers with all the essential information up-front. The CFPB form will let borrowers immediately determine whether the interest rates are fixed or adjustable. It also shows closing costs and required payments among additional information.