Saturday, June 11, 2011

The Consumer Financial Protection Bureau - What Does It Do? Will It Work?

Spec Assistant to the President, Elizabeth WarrenImage by mdfriendofhillary via FlickrThis week the White House hosted a summit of financial writers and editors at the White House. This event gave 2 dozen financial journalists access to top Obama administration officials. The President even stopped by to give his views on his personal finance beliefs and a brief Q&A.

The meeting centered on the debt ceiling, the housing crisis and the job market. One of the focuses of the current administration is financial education. The recession has brought to the forefront the need for public education and protection from potentially damaging investment products.

President Obama, early in his term, assigned Elizabeth Warren as head of a new federal agency called the "Consumer Financial Protection Bureau"(CFPB). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the consumer bureau. Since then, from scratch, she has been trying to lay out how the agency will function and what it will try to accomplish.

She described the CFPB's key principles as ensuring that when using financial products:
  • Prices are clear.
  • Risks are clear.
  • The ability to compare like products is relatively easy.
If the agency can achieve that, then consumers can ask two key questions:
  • Can I afford this product?
  • Is it the best deal I can get?
The result of all this, Warren says, is a competitive marketplace -- which should be good for both consumers and businesses. She compares the CFPB with the FDA. Just as the FDA doesn't allow inferior medical products to be sold to the public, the CFPB will see to it that consumers are able to differentiate between good, safe loans and deceptive loans that charge lower prices by burying risk in the fine print. The agency aims to work with consumers and lenders to ensure that financial contracts are understandable, so that markets can work better.

The CFPB has it's own website at There they state the central Mission of the CFPB:
"The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products."

The 3 goals of the Consumer Financial Protection Bureau (CFPB) are:


An informed consumer is the first line of defense against abusive practices. The CFPB will work to promote financial education.


Like a neighborhood cop on the beat, the CFPB will supervise banks, credit unions, and financial companies, and it will enforce Federal consumer financial laws.


The consumer bureau will gather and analyze available information to better understand consumers, financial services providers, and consumer financial markets. 

This new agency will take over all the functions from government agencies that used to perform this function before. The agency that did most of these functions before was the Federal Trade Commission(FTC). Their work in financial consumer protection will shut down and move to the CFPB.

Others include:

Office of the Comptroller of the Currency (OCC)
Office of Thrift Supervision (OTS)
National Credit Union Administration (NCUA)
US Department of Housing and Urban Development(HUD)
Federal Deposit Insurance Corporation (FDIC)
The Federal Reserve System

When it's all said and done the CFPB will be a a regulatory agency with unprecedented powers with a broad reach across industries. We will have to wait and see how it will affect consumers and business. But we can be sure that the CFPB will do 3 things:

  1. Consumers will be able to finally read the financial disclosure documents on their financial products. Whether it be credit card or mortgages, the terms and conditions will be in clear, easy-to-understand terms that allow consumers to compare offers.
  2. The CFPB will examine consumer financial products, not the industries themselves. Previously, regulatory industry's were structured by individual industrys, now they will all be under one roof and the industry the product comes from will not be scrutinized, just the product.
  3. Create a transparency on how credit scores affect the terms and conditions of the financial product like mortgages and credit cards. Lenders are required to disclose a score they used in all risk-based pricing notices and adverse action notices beginning July 21, 2011.

The future role of the Consumer Financial Protection Bureau will something to keep an eye on. 

Here's a video about the Consumer Financial Protection Bureau:


  1. Banksters are doing whatever they can to limit the authority of the CPFB including limiting its authority, changing the head to a "board", and de-fund it. Call your senator or representative and let them know that they will pay a price if they sell your interest out to a bankster lobbyist.

  2. Whatever the government does makes me nervous. A lot of power in the CFPB. I hope it works out to benefit the regular guy and not the banks.

  3. There are so many government agencies who are already supposed to perform these types of activities, it's hard to see how another agency will help. I'm skeptical that this will be anything more than another source of propaganda and excuse-making. The best protection is always a consumer who is well informed.


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