CFPB: Regulation done right

Seven years after the start of the economic meltdown, public opinion continues to solidly favor effective regulation of financial companies. According to a national survey conducted this past summer by my organization, the Center for Responsible Lending, and Americans for Financial Reform, 90 percent of voters see regulating financial services and products as either important or very important. This view transcended differences of age, race, geography, and political party. 

The Consumer Financial Protection Bureau (CFPB) has shown that this regulation can be done right. Since its start in 2010, the CFPB has been transparent in its work, engaged stakeholders on all sides of its issues, met its deadlines, and used technology effectively. It’s been a blueprint for the way you’d want an agency to operate in the 21st century.

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Take, for example, CFPB’s rule defining the “qualified mortgages” deemed safest for families getting a loan. Given the importance of the housing market to the U.S. economy, and the devastation wrought by reckless subprime lending in the past, it’s hard to imagine a rule that is more important today. In crafting this rule, CFPB actively sought feedback from lenders, realtors, other industry players, and consumer advocates and civil rights groups. No one side got everything it wanted in this rulemaking. But I would agree with David Stevens, head of the Mortgage Bankers Association, who said "If you look at the overall final rule, we think the CFPB got a lot right." The Qualified Mortgage rule does a good job balancing protections for borrowers with broad access to mortgages. Lenders have dramatically improved underwriting since the crisis and some 95% of loans being made today meet these common sense standards.

CFPB has also been a strong enforcer of rules already on the books. Recently, the agency entered into a Consent Order with Cash America International, Inc., one of the largest payday lenders in the US. The CFPB found that this firm had been overcharging military servicemembers for small-dollar loans in violation of the Military Lending Act and robo-signing court documents in debt collection lawsuits. As a result of this enforcement action, Cash America has now committed to refunding $14 million in overcharges to borrowers. Additionally, Cash America has taken steps to correct almost 14,000 improper debt collection lawsuits.

Providing transparent information for individual consumers and the general public is another key part of the CFPB’s work. The agency’s Know Before You Owe initiative has developed mortgage disclosure documents that clarify loan terms for borrowers so they can make informed choices about the best mortgage for them. CFPB also has produced comprehensive and accessible research on payday lending, financial literacy, student loans, credit reporting, and other important topics.

Another innovation implemented by CFPB has been its consumer complaint database. This system collects information about problems with consumer loans, bank accounts and services, and debt collection. The idea of publicly reporting consumer complaints against named institutions has been controversial among some industry groups and policymakers, to be sure.  In my opinion, companies should view the complaint database as an effective tool for identifying and resolving consumer problems before they escalate. 

Going forward, the major challenges facing CFPB should be less about politics (I hope) and more about emerging issues for households. Families across the country need an opportunity to rebuild their household balance sheets after the worst financial crisis in decades. The CFPB can help with this by reigning in abusive debt-trap practices and debt collection problems that can further strip away family income or wealth.

The CFPB is setting the course for a financial marketplace with greater transparency and accountability.  Consumers, responsible lenders and our nation’s economy all benefit from the improved markets that result from this work.

Calhoun is the president of the Center for Responsible Lending (CRL).  CRL is a non-profit, non-partisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.

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