The Consumer Financial Protection Bureau (CFPB) is scheduled to begin operations on July 21, but it remains unclear who will head the new agency and what regulatory power it will have. The Bureau was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to educate and protect consumers from predatory lending practices. However, it has been mired in controversy since its inception by opponents of financial reform and financial sector lobbying groups.
Republican leaders are concerned that a powerful consumer watchdog agency with broad regulatory power could mire lenders in costly compliance costs, which would ultimately be passed on to consumers in the form of higher bank fees and interest rates. A more cynical interpretation: Republicans want to ensure the agency is little more than a paper tiger with no real power to curb fraudulent financial practices.
Last May, the House Financial Services Committee voted to put strict limits on the authority of the Director of the Bureau, and congressional Republicans have pledged to block any presidential nominee unless serious structural changes are made to the organization. Three measures recently passed in committee would 1.) replace the Office of the Directory of the Bureau with a five-member panel, 2.) allow the financial regulatory panel to overturn existing regulations with a simple majority vote rather than two-thirds, and 3.) prohibit the agency from operating until the Senate confirms a director. None of these measures are expected to pass the Senate, let alone survive a presidential veto, but the Senate confirmation of the Bureau’s first director is expected to be a no-holds-barred political dogfight.
While politicians continue wrangling over the exact scope and nature of the nascent agency, I think it’s important that consumers understand more of the agency’s mission and how it will impact consumers rights as borrowers. According to their official website, “The central mission of the CFPB is to make markets for consumer financial products and services work for American – whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” This mission is separated into three primary components: to educate consumers about responsible borrowing practices and how to identify abusive lenders, to ensure industry compliance with federal regulation through enforcement of agency policies, and to research consumer behavior to better understand the needs of consumers and identify the practices that put them at risk for exploitation.
Until legislators finalize the organizational structure and operating budget of the new agency, it will remain unclear exactly how the agency will evolve as it emerges from the primordial ooze of the legislative process. Beltway insiders are torn whether to expect a lion championing the rights of consumers or a paper tiger that will subsist only at the mercy of banking industry special interests. Look for more details right here as the process unfolds over the next few weeks.
Tanner has spent the last four years not only gaining insight into the macroeconomic trends that produced the Great Recession, but also learning how to restore his own finances from losses during the 2007 housing market collapse. Having gained experience from both academia and the school of hard knows, Tanner is uniquely qualified to interpret the impact of macroeconomic happenings on your wallet.
When not pontificating on all issues financial, Tanner enjoys pontificating on all issues non-financial. Contrariety is among his more heavily indulged vices. He also enjoys cycling, music, wine, literature, sports, and traveling anywhere he will be tolerated. He currently resides in Des Moines, Iowa. Besides blogging, he hopes to one day work in economic policy analysis, either at a think tank, government agency, consulting firm, or non-profit organization.
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