What, exactly, will the Consumer Financial Protection Bureau do, and how will it benefit consumers?
“An empowered C.F.P.B. could actually be a boon to business,” and “the friend that banks never knew they needed,” James Surowiecki writes in The New Yorker.
With the idea that “well-informed consumers make for vigorous competition and efficient markets,” the CFPB’s emphasis on explaining deals to consumers in simpler terms (for example, two-page mortgage disclosure forms) will not only benefit consumers, but lenders as well. He writes:
“For all the talk of the financial industry’s power, its performance over the past decade has actually been dismal. Countless lenders have gone out of business, and many of those still standing saw their stock price decimated after they loaned immense amounts of money to people who couldn’t repay it. The banks thought they were taking advantage of uninformed consumers, but they ended up playing themselves. In a more transparent credit market, almost everyone would have been better off.”
Citing Surowiecki’s article, Megan McArdle at The Atlantic challenges the idea that a regulatory agency can and should protect consumers:
“It seems to me that the most likely outcome is a fairly useless agency that spends a lot of time playing with disclosure documents, and occasionally yells at banks about penalty fees, maybe requires banks to offer these plain vanilla loans of which Warren is so fond … but shies away from doing anything which will actually restrict credit availability. This agency won’t do much harm, but of course, it’s hard to see how it could do much good, either.”
Financial Services Committee Chairman Spencer Bachus has said that he worries that the CFPB will make decisions that borrowers and lenders should make, including that “certain products shouldn’t be offered.”
The CFPB has five primary functions under law, as outlined by acting CFPB head Elizabeth Warren in her March 16, 2011, testimony to Congress. She described them as:
· To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions;
· To protect consumers from unfair, deceptive, and abusive acts or practices, and from discrimination;
· To reduce outdated, unnecessary, or overly burdensome regulations;
· To promote fair competition by enforcing the federal consumer financial laws consistently; and
· To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation.
“Many people – both opponents and supporters of the agency – assumed that the CFPB would seek to accomplish these goals primarily by issuing waves of new regulations. While there certainly is a place for rules aimed at specific abuses, we do not envision new rules as the main focus of how the CFPB can best protect consumers,” Warren continued in her testimony.
The CFPB, which is funded through a set percentage of the Federal Reserve’s revenues (10 percent in 2011, to increase to 12 percent by 2012), “expects to have a $329 million budget in 2012, with about 1,200 employees,” the Los Angeles Times reported.