What Is CFPB and What Does It Offer Consumers?
The new presidential administration will soon consider the Dodd-Frank Act , a set of regulations developed by the Obama administration in response to the 2008 financial crisis. Some political analysts expect them to dissolve the Consumer Financial Protection Bureau (CFPB). So what is it and how is it useful for consumers?
Senator Elizabeth Warren came up with the idea of creating an agency like the CFPB in 2007, and after the Great Recession it was officially launched in 2010. In general, the CFPB’s goal is to protect consumers through regulation of banks, credit unions, payday lenders, and mortgage services. , and other institutions offering financial products. Many of these organizations, especially payday lenders, are notorious for targeting consumers. Some would argue that the consumer should read the fine print and figure out how these products work on their own. This sounds simple enough, but the problem is that many of these companies are deliberately misleading their terms, so the CFPB was created to be more transparent.
Especially now that the Bureau is under threat of dissolution, it helps to understand how it works. The CFPB’s goals tell you what you should be concerned about as a consumer.
More transparency from mortgage lenders
Banks played a large role in the 2008 financial crisis thanks to subprime mortgages . In short, banks made huge loans to just about anyone, even if their credit was terrible and even if heck they couldn’t afford to pay off the loan. This created a bubble that eventually burst. US home prices fell nearly 30% and the stock market fell about 50% . We were hit hard during the recession.
“Well, people shouldn’t have taken these loans,” you say. Okay, but we’re talking about the global financial crisis here. The solution is not easy.
To prevent this from happening again, the CFPB has created some rules and regulations prohibiting consumers from borrowing more than they can afford and foreclosing their home. Perhaps the most important of these is the ‘ ability to pay’ rule . This rule required lenders to consider several different critical factors when approving a loan, some of which include income, debt-to-income ratio, and employment status. In general, lenders now need to make sure that you can actually repay the loan. Several other mortgage regulations that the CFPB has set to help consumers include:
- The mortgage service should send you a clear statement each month detailing how they credit your mortgage payments.
- Service centers must credit your payments on the day they are received.
- If your adjustable rate mortgage changes, the service staff must notify you in advance.
- If you are facing a foreclosure, the support staff cannot initiate a foreclosure until you are more than 120 days late. This way, you will have ample time to apply for a loan change.
In general, CFPB rules are intended to ensure that homeowners can truly afford their homes and to make lenders more transparent about how they handle your account. You can see a full list of their final rules here .
Where to go without a CFPB: No matter what legislation is passed, stayed, or replaced, if you’re a potential homeowner, you should be aware of all the hidden costs associated with home ownership. Most experts also recommend making at least a 20% down payment, although this is certainly not the only guideline for determining how much home you can afford. Even with the CFPB rules in place, lenders often approve of you more than you can afford, so do your own calculations .
Forum on Questionable Business Practices
CFPB has a huge database of customer complaints . Basically, it is a forum where clients can report their concerns to a bank, credit union, or other financial institution. You can sort by account type, date and company. They also track consumer “narratives”, which are optional relevant descriptions from customers.
This is useful if you are thinking about changing banks, for example, and want to study the reputation of another bank. However, it is also useful if you are having problems with your current bank. Remember that Wells Fargo fiasco ? Well, the CFPB actually had a bunch of related complaints from Wells Fargo customers before it all came out:
If you have any problems with Wells Fargo, this database would be a good place to file a complaint . If the CFPB receives an onslaught of such complaints, they will investigate the company. In fact, they were the agency that arrested Wells Fargo .
Where to go without CFPB: Federal Deposit Insurance Corporation also has the online form of assistance to consumers, which allows you to file a claim to the institution, the FDIC regulated. The Federal Reserve accepts consumer complaints at FederalReserveConsumerHelp.com . You can also call their customer service at (888) 851-1920 or send a fax at (877) 888-2520. If you want to research a bank or credit union’s reputation, online tools like Nerdwallet and Consumer Affairs include customer reviews and testimonials.
Payday protection from credit card companies and lenders
We all know that credit card companies can be shady , but sometimes they actually use illegal tactics to defraud customers and that’s when the CFPB (and the FDIC) get involved. For example, back in 2012, the CFPB investigated and ordered three US Express Subsidiaries to pay $ 85 million to 250,000 customers for allegedly misleading them. The New York Times reported :
According to them, when issuing a loan, American Express also discriminated against applicants by age. The company also tricked consumers into paying off credit card arrears by promising to improve their credit score, the researchers said; in fact, regulators have found that American Express did not report payments to credit bureaus at all.
The CFPB and FDIC also investigated Discover’s “credit protection” service , which included identity theft protection and credit rating tracking. Discover assumed that these services were free, but they actually charged customers a fee to use them, according to agencies. Discover has agreed to return $ 200 million to over 3.5 million cardholders.
The CFPB has also targeted payday lenders . In 2013, they investigated Cash America for illegal robot subscriptions and illegal overpricing for employees and their families. CFPB reported :
Cash America violated the Military Lending Act, which limits the rate on certain types of loans to military personnel to 36 percent. Cash America has provided payday loans in excess of this rate to more than 300 active military or dependents … For nearly five years, Cash America’s Ohio-based debt collection subsidiary, Cashland Financial Services, Inc. documents filed in lawsuits over her collections in Ohio, without complying with state and court requirements for a signature.
As a result, Cash America had to return $ 14 million to customers. Last year, the CFPB also proposed a new rule to regulate payday lenders. Basically, these rules included:
- A “full payment test,” which required lenders to verify that the borrower could make payments while still paying basic living expenses.
- Regulations on penalty fees
- Rules that would make it harder for lenders to reissue or refinance loans by luring borrowers into the debt cycle
Not everyone was convinced that these rules were enough to solve the industry’s main problem – insanely high interest rates, but at least they were a step in the right direction. At the moment, the proposed changes are in limbo.
Opponents of the proposed CFPB rule argue that it decides “for all Americans if they can take out a small loan to meet emergency needs,” but this is not entirely true. First, the rule does not get rid of payday loans at all.
Second, and more importantly, there are other petty dollar loan options. Most personal finance experts will tell you: Payday loans are probably the worst – case option that can be avoided at all costs to meet your “urgent needs.”
Where to go without the CFPB: Even with the CFPB’s proposed rules, payday loans are probably not the best option. However, it is now especially important to learn about the dangers of payday loans and know your alternatives. You will probably be better off getting a small dollar loan from a bank or credit union. The FDIC Small Dollar Loan Program is an initiative to provide affordable loans to borrowers, so you can find a list of institutions here .
The National Credit Union Fund’s REAL Solutions® program is another initiative that helps borrowers who are on a low budget. Some credit unions also offer “brand loans” for people with bad credit. Peer-to-peer loans with services like Kiva and Lending Circles are another alternative for borrowing money as a last resort . With either of these options, you will still have to pay off the loan, but the terms are much better than payday loans and are designed to help you get back on your feet.
Protecting student loan borrowers
Commercial colleges are almost as sketchy as payday loans, and have been recalled quite often in recent years, in no small part because of the Bureau of Consumer Financial Protection.
Just last September, for example, the CFPB forced Bridgeport Education, Inc. reimburse $ 23.5 million to students after prompting students to take out loans by giving them the wrong monthly payment. CFPB reported :
Specifically, the CFPB found that Bridgepoint was informing students that borrowers usually paid back school loans with monthly payments of only $ 25, which was unrealistic.
Predatory lending is one thing, but some commercial colleges adamantly lie about their employment rates in order to attract potential students as well. All of this sucks for students, but it’s not good for taxpayers either, considering we pay tens of billions to fund these companies.
In addition to exploring commercial schools, CFPB also has resources, tools, and guides to help student loan borrowers navigate the loan process . Their college cost comparison tool , for example, helps students compare offers from several different schools by breaking down costs for the first year as well as costs after graduation.
Where to go without the CFPB : Under the current administration, many analysts expect commercial colleges to rebound . What is the best thing you can do when choosing a college? Research. If you are thinking of a commercial school (or any other school, really), My College Guide suggests asking the following questions:
- Are job rates “hired” or “hired”? Enrollment could mean that the student went to graduate school. Being employed means that they have actually found a job.
- Have they been employed or employed in their field of study ? There is a huge difference. After all, you can get a minimum wage job that doesn’t require your education. One school was recently fined $ 30 million for advertising high employment rates, although many of its graduates have worked in fast food and other low-paying jobs.
- What is the time frame for statistics? Do students find work six months after graduation, or did they study employment rates years after graduation?
When it comes to student loan assistance, the Department of Education has its own set of resources and these will also come in handy when planning your loans.
Finally, the CFPB has been a strong proponent of financial literacy – you know what detractors say consumers have to make that decision? The CFPB website includes educational resources for setting financial goals , preparing taxes , obtaining auto loans, and more.
Luckily, the most basic financial literacy tips are free, and here are some courses you can take for free. With Dodda-Frank on the line, it is more important than ever for consumers to protect themselves , which means knowing exactly what we need to be protected from.