The Consumer Advisory Board to the Consumer Financial Protection Bureau is responsible for identifying the “impact of emerging products, practices or services on consumers and other market participants.” At the February board meeting, Richard Cordray, Director of the CFPB, presented the Bureau’s areas of focus for the future.
Director Cordray’s speech to the Consumer Advisory Board started by reviewing recent accomplishments including “sweeping new rules” in the mortgage industry and “extensive” changes in the credit card market. The Bureau also stated that they have addressed more than 130,000 consumer complaints regarding consumer financial products. Additional work efforts to support seniors and servicemembers were also noted.
More importantly, Director Cordray presented “four classes of problems” that the Consumer Bureau will continue to focus on in the future:
- First Class of Problems: Deceptive and Misleading Marketing of Consumer Financial Products and Services.
- Bureau’s Focus: “The new financial reform law makes it illegal to engage in unfair, deceptive, or abusive acts or practices in connection with consumer financial products or services, and directs us to enforce this prohibition. More generally, we are charged with the duty of ensuring fair, transparent, and competitive markets. We recognize that a key to protecting consumers is strong and vigilant enforcement.”
- Second Class of Problems: Debt Traps - products that trigger a cycle of debt whose substantial costs over time can disrupt consumers' financial lives. The tell-tale sign of such products is that their success is based on a substantial percentage of users rolling over their debts on a recurring basis. For a considerable number of consumers, the fees will pile up and leave them worse off.
- Bureau’s Focus: “We want to make sure that consumers can get the credit they need without jeopardizing or undermining their finances. Debt traps should not be part of their financial futures.”
- Third Class of Problems: Consumer’s inability to choose the product - such as debt collection, loan servicing, and credit reporting. Consumers are unable to choose their provider of financial products or services. When people cannot “vote with their feet,” their clout is limited, even though these products and services can have a profound influence on their lives. Without consumer choice, a key element of market discipline is lacking. The result is to permit or even facilitate a distinct indifference to the interests of individual consumers.
- Bureau’s Focus: “At the Bureau, we are taking on this problem by highlighting troublesome practices and working to fix them. At the same time, we recognize that careful rules and effective oversight (through supervision and enforcement) are needed if we are going to correct the kinds of market failures that subordinate the interests of individual consumers.”
- Fourth Class of Problems: Discrimination - unequal and harmful treatment based on characteristics such as race or gender or other bases prohibited by law. Consumers should have equal access to all types of credit products and fair pricing.
- Bureau’s Focus: “We made it clear last year that – like the other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as on intentional violations. From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate. Every consumer, regardless of race, gender, or other characteristics protected by federal law, should have equal access to credit.”
The Bottom Line: The CFPB continues to emphasize and telegraph where they will focus their time and resources. The Bureau’s fight against “evil discrimination” and fair lending will be fought by leveraging disparate impact theory (that uses statistical analysis to determine if discriminatory behavior has taken place). Therefore, financial institutions are well-served to test for possible fair lending law violations by analyzing their numbers.
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