Today, the Consumer Financial Protection Bureau announced that it would finally start taking a good, hard look at the debt collection industry. It’s about time. Few industries need the attention more.
The CFPB also released 3 resources (all in PDF format):
Read Consumer Financial Protection Bureau to oversee debt collectors from the CFPB.
The Consumer Financial Protection Bureau has started looking into regulating non-bank financial industries now that it has a chief. For starters, it is looking at debt collectors and credit reporting agencies. Says CFPB chief Richard Cordray, “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks.” (Hat tip: CNN)
Twice now, New York U.S. District Court Judge Jed Rakoff has refused to approve a settlement reached by the Securities & Exchange Commission. In the first case, Bank of America agreed to pay a $33 million fine without admitting it did anything wrong in hiding bonuses of $3.6 billion promised prior to its merger with Merrill Lynch. Judge Rakoff eventually approved a $150 million settlement, calling it “half-baked justice at best.”
Before it even commences business, the CFPB is under attack and in danger. It was created to be a voice for consumers in Washington, and it is something we desperately need, because existing regulatory agencies like the OCC, the SEC, and the FDIC exist more to protect the banking industry, not consumers.
But the banking industry obviously has plenty of money, and its lobbyists are hard at work spreading fear, uncertainty, and doubt—and outright lies—in Washington.
Most consumer law and regulations are—basically—an attempt to level the playing field between those with knowledge and power and those without knowledge, or power, or both.
I mean corporations and consumers, of course. The general idea is that since consumers are generally clueless about things like amortization, APR, and most financial jibber jabber, they can still make intelligent decisions as long as corporations make disclosures that consumers can understand.
The dirty little secret, however, is that nobody reads disclosures, not even distinguished, well-respected federal appellate judges like Frank Easterbrook and Richard Posner. And really, how many contracts have you ever read?
So if the foundation of the common law of fraud, along with the foundation of the U.S. consumer regulatory scheme, is that disclosing stuff about cars, loans, credit cards, houses, etc., render the marketplace fair, then our system of consumer justice is just an exercise in self-deception, isn’t it?
FreeCreditScore.com, which is probably the best-known “free” faker now charges $1 despite the name, so that it does not have to follow the FTC’s rule:
[W]ebsites offering free credit reports must have a disclosure, with links to AnnualCreditReport.com and FTC.gov, that appears across the top of each page that mentions free credit reports. Violators are subject to legal action that can result in penalties of up to $3,500 per violation.
White House economic adviser Austan Goolsbee on the proposed Consumer Financial Protection Agency:
Earlier this week, President Obama announced his plan to create a Consumer Financial Protection Agency as part of his financial reform package. It is a great idea, and I hope it will succeed.
If you buy a sports car, you are not likely to accept a station wagon when you go to pick up your new car. But that happens all the time with financial products, because most consumers would not know the difference between the paperwork for a teaser-rate mortgage with a balloon payment and the paperwork for a clean, 30-year fixed mortgage. The market does not work when good products are indistinguishable from bad ones. The CFPA will be able to do so.
Further, while Congress and state governments can create laws to regulate financial products, they are a cumbersome regulator, often ineffective for addressing a nimble, frequently-changing financial marketplace. The CFPA will be able to move quickly to address emerging financial products.