Should regular people have someone looking out for their best interests in the halls of government? We’d all probably agree that the answer is “Yes.” But what about having a government agency whose sole purpose is to police financial companies to make sure they are not taking advantage of consumers? Sounds like a pretty good idea, right?
It turns out we already have such a thing: the Consumer Financial Protection Bureau (aka the CFPB) which was created in 2010 in direct response to the financial crisis of 2008.
Who Created the CFPB and Why?
As you probably remember, the crisis was set off by a powder keg of problems in the subprime mortgage market. Lenders were persuading prospective homeowners to take on loans that were destined to crush them because the amount of the loans was bigger than they could afford and the type of loans (Adjustable Rate Mortgages) meant that interest rates on them would skyrocket after just a few years.
Sure enough, after several years of these aggressive – and in some cases, fraudulent – lending practices, homeowners began to default on their loans at an alarming pace. To make matters worse, many longstanding corporate entities (like the insurance giant AIG), had made wildly irresponsible bets on these mortgages.
As the subprime market crashed, the companies like AIG that were on the wrong side of the bet got in deeper and deeper trouble and eventually many of them had to be bailed out by the government. The stock market crash (in which the Dow Jones Industrial Average lost almost half its value) also decimated many Americans retirement accounts. In 2009 there were stories in local newspapers about formerly retired people going back to work as grocery baggers or store greeters in order to make some income since their retirement account was no longer enough to rely on.
With the results of the financial crisis fresh in the minds of lawmakers and newly elected President Obama, the CFPB was created in 2008 to be a “watchdog” for consumers against the potential predatory actions of financial companies.
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Why is the CFPB Under Attack?
Currently the funding for the CFPB comes from the Federal Reserve, and that funding is unlikely to be diverted for any other purpose. It’s considered a solid source of funding. However, the House of Representatives recently passed a bill that would instead make CFPB dependent on funding from Congress, in which case the funding could be reduced (or eliminated entirely) in any given year.
One of the proponents of the bill, Rep. Jeb Hensarling, said that “the CFPB is perhaps the single most powerful and least accountable federal agency in all of Washington.” His explanation for supporting the bill actually is a good case for why the CFPB is necessary. As we saw in the financial crisis of 2008, many companies within the financial industry have the power to affect our lives (in positive or negative ways) and if there is no oversight from an empowered regulatory agency like the CFPB, then we cannot be sure that incidents like the ones we saw in 2008 will not occur again in the future.
What Good Has the CFPB Done?
In many ways, the CFPB can be considered a great success so far. A few recent news items make that clear. Yesterday, the CFPB announced that it had recovered more than $1 million for military service members and veterans (and their families). The $1 million includes money returned to military members because of unlawful or fraudulent practices by credit card companies, lenders, and debt collectors. (You can read the full report here)
Other industries where the CFPB has made progress in curtailing consumer abuses include:
- Payday lending
- Debt collection
- Auto lending
- For-profit higher education
These efforts will have long-lasting positive effects for American consumers. And the good news is that the good actors – that is, the companies who are abiding by the law and treating customers with respect – appreciate the CFPB’s efforts to curtail the bad actors. This is a win-win for companies following the law and for consumers.
How the CFPB Can Help You
If you find yourself dealing with a financial company that is engaging in fraudulent or predatory practices, the CFPB may be able to help. They have a robust complaint input system that will allow you to file complaints related to any of these products/industries:
In most cases, the CFPB will respond to you in a timely manner. And if all goes well, this agency will be able to continue helping regular people well into the future.
Image Credit: afagen