In the news

WISPIRG Foundation
Wisconsin State Journal
Karen Rivedal

Even as Congress and the Obama Administration continue to argue over its powers and leadership, the Consumer Financial Protection Bureau began its work as top cop for all consumer finance matters, including mortgages, on July 21.

You can read a recent progress report from CFPB officials on building the agency here. And the bureau's latest work on a prototype mortgage disclosure form can be seen here.

Many business and banking interests remain skeptical or hostile toward the new agency's broad mandate and/or practices.  (See the U.S. Chamber of Commerce constant eye on the agency here.)

But consumer advocates -- and a majority of Americans, according to recent polls -- welcome the agency's intended clout on consumer finance protections and want to see lawmakers and business interests back off.

Supporters including Americans for Financial Reform, AARP and the Center for Responsible Lending also believe urgency is key, as they spelled out in a comprehensive report late last month entitled "10 Reasons We Need the Consumer Financial Protection Bureau Now."

Wisconsin consumer groups also support the agency's goals, according to WISPIRG , which describes itself as a statewide, non-partisan, citizen-based, non-profit, public interest advocacy organization.

Its director, Bruce Speight, agreed to encapsulize the lengthy '10 reasons' report, and I pasted his point-by-point summary of its main points below. Thanks for the extra work, Bruce.

(I also attached the summary to this entry under Related Documents).

10 Reasons We Need the Consumer Financial Protection Bureau Now

By Bruce Speight, WISPIRG Director, and Ed Mierzwinski, USPIRG Consumer Program Director

For years leading up to the 2008 financial collapse, federal bank regulators ignored numerous warnings of increasingly predatory mortgage practices, credit card tricks and unfair overdraft policies used by banks.

In response to the problems caused by those predatory practices, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a major reform demanded by the public: it established the landmark Consumer Financial Protection Bureau (CFPB), which takes over as the primary regulator of 18 consumer financial laws that seven federal regulators had unevenly and inadequately implemented and enforced in both the bank and non-bank financial sectors.

Here are the 10 Reasons Wisconsin Consumers Need the CFPB Now

Reason 1: Unchecked predatory mortgages: For many years, mortgages helped most families to build assets and financial stability. But when the aggressive marketing of reckless loans became routine in the subprime market, too many mortgages became destructive, both for vulnerable communities and the entire economy. Bank regulators ignored these problems. Reforming mortgage servicing practices should be an important priority for the CFPB; they should ensure that the companies who collect your mortgage payments keep accurate track of what you owe, do not charge illegal fees, do not enroll you in overpriced insurance, cannot foreclose without clear legal title, and do not make mistakes that push you into foreclosure. Most importantly, the CFPB should ensure that mortgage services work with you when you get into trouble to help avoid foreclosures whenever possible.

Reason 2: Unfair credit card practices: In a period when complaints about credit card abuses to consumer advocates and regulators were exploding, between 1995 and 2007, the Office of the Comptroller of Currency (OCC) issued only one public enforcement action against a Top Ten credit card bank. The Credit CARD Act of 2009 enacted important reforms in the credit card area. Ensuring full compliance with both the letter and spirit of that Act should be a top priority for the Bureau.

Reason 3: Overpriced overdraft fees: Bank overdraft fees cost Americans billions annually in unfair fees. Years ago, when you went to an ATM or attempted to use your debit card at a store, the default switch was to deny the transaction at no cost if it would overdraft your account. When you bounced a check, banks would return it. Seeking greater fee income, banks and their consultants came up with the idea of standard “overdraft protection.” They discouraged consumers from applying for overdraft lines-of-credit or transfer-from-savings programs to overdrafts. Instead, they aggressively promoted “courtesy overdraft” as a “standard feature” of regular checking accounts. This default feature allowed nearly every accountholder to overdraw their checking account, at a cost of $30-$35 for the privilege, even for a 50 cent overdraft.  The CFPB should move immediately to stop banks from tricking people into incurring overdraft fees.

Reason 4: The growth of triple-digit payday lending: From highly-visible signs and convenient neighborhood locations or websites, payday loans beckon borrowers with promises of quick cash and no credit checks. But instead of a small amount owed for a couple of weeks, borrowers become trapped in thousands of dollars of debt from fees and interest that can last a year or even longer. Most payday borrowers have nine repeat loans per year and pay 400 percent interest. Although the CFPB does not have authority to extend to all consumers the 36% rate cap of the Military Lending Act, the agency does have the authority to address other harmful aspects of storefront, internet and bank payday loans.

Reason 5: Lack of consumer legal rights: In the financial marketplace, as well as in other parts of the market, consumers have little ability to defend themselves in court. In 2005, a so-called “Class Action Fairness Act” made it harder for consumers to band together to challenge financial and other rip-offs. Worse, over the last fifteen years or so, banks pioneered insertion of “mandatory arbitration” clauses in all bank-related contracts and agreements to strip consumers of their right to hold wrongdoers accountable in the justice system. A 2011 Supreme Court decision now even allows companies to hide class action bans in the small print of these boilerplate “take-it-or-leave it” contracts, including bank account, payday loan, credit card and other financial contracts.[i]  The Wall Street Reform and Consumer Protection Act gives the CFPB the authority to regulate or ban pre-dispute mandatory arbitration after first conducting a study.

Reasons 6: Private student loan rip-offs: Student lending is big business. The CFPB has been given full supervisory and examination authority over private education loans and also a statutory requirement to designate a “Private Education Loan Ombudsman.” Federal student loans have a variety of protections, but private student loans can be much more dangerous. This market has had little supervision at the federal (or even the state) level, and little information about the market is publicly available.  The CFPB should begin to collect more information about this market and prohibit lenders from pushing students to take on more expensive and riskier private loans without first exhausting their federal aid.  Additionally, the CFPB should consider enforcement or supervision action now (and rules eventually may be needed) to address schools that are making loans despite knowing (and disclosing to their investors) that a majority of the students will be pushed into default.

Reason 7: Credit bureau mistakes: Creditors, insurers, banks, landlords and a growing number of employers base their decisions in part or even entirely on credit reports and/or credit scores. Three national credit bureaus, Equifax, Experian and Trans Union, have become the gatekeepers to financial success in the United States. Credit scores issued by the industry leader, Fair Isaacs/FICO, are derived from the credit reports held by the Big Three credit bureaus, which also issue their own product, VantageScore. An array of “specialty” credit bureaus or consumer reporting agencies (CRAs), many owned by Fortune 500 firms, issues reports for employment, insurance claims, residential rentals, check writing, and medical records purposes. New types of databases, such as credit decision matrices derived from consumer posts to Facebook and other social network sites, are also being marketed to business subscribers. The CFPB gains authority over the Fair Credit Reporting Act (FCRA) rulemaking as of July 21, 2011.

Reason 8: Debt collector problems: Debt collectors use various forms of illegal intimidation, including talking with friends and employers about a consumer’s debt without permission from the debtor; making harassing or abusive telephone calls; threatening to take actions that are illegal or not intended; and suing on debts that were paid or not owed. The CFPB should enforce the laws against debt collectors who make illegal threats or harass people for debts they do not owe, and propose rules requiring that debt collectors and debt buyers hold all relevant information identifying the owner of, amount of and payments on the debt, and all contacts with the consumer, before they can collect a debt.

Reason 9: Unregulated prepaid debit cards: The prepaid card industry is in an important growth stage. There has been relatively little regulation of the industry thus far, and having enjoyed relative freedom from regulation as prepaid cards developed, it is now time to ensure that prepaid card accounts enjoy the same protections as bank accounts do and to stop junk fees from spreading in this market. The CFPB should give consumers more prepaid card rights and develop clear disclosures for prepaid cards (and bank accounts) with a “Schumer box” that consumers can see before purchasing a card.

Reason 10: Auto finance scams: An auto loan is the biggest or second biggest loan that many consumers will take out. The auto lending market is plagued by many of the same problems as the mortgage market, including incentives for loan packing, kickbacks for putting consumers in more expensive loans, fair lending abuses, bait and switch tactics, deceptively low advertised rates, loan flipping, and consumers locked into loans bigger than the cars are worth.  Auto lending problems can ruin credit and lead to lost jobs. The CFPB should work with the FTC to identify abuses, work with other regulators on other known problems, including yo-yo sales and other unfair tactics, and ensure that the condition of used cars is accurately represented to borrowers and lenders by requiring independent inspections and disclosure of known defects.

The full WISPIRG/AFR report “Ten Reasons We Neeed The CFPB Now” includes more details on these problems and a series of recommended actions for the CFPB to take to solve each of the ten problems. It is available here.

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