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Will This Change Everything -- Again?

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Yesterday was the official launch date of what could prove the most influential and lasting legacy of the financial crisis and market meltdown. The question everyone's asking, though, is whether it's actually going to help the people it's supposed to protect -- and what will happen next in its short but storied history.

The Consumer Financial Protection Bureau quietly took its place among regulatory agencies on Thursday, as the Dodd-Frank act had listed July 21 as its start date. Of course, the CFPB has made its presence felt for months, as its website went live back in February, and special advisor Elizabeth Warren has been hard at work launching various initiatives; bringing together experts from the financial industry, consumer groups, and academics to look at the impact of regulation thus far; and releasing reports on credit and the building of the CFPB.

What the CFPB will cover
As currently envisioned, the CFPB has the potential to have truly massive scope. The coverage area of the CFPB includes many different categories of financial services and companies that provide them, such as the following:

  • Larger banks and credit unions, from top market-cap bank JPMorgan Chase (NYSE: JPM  ) down to any institution with at least $10 billion in assets.
  • Credit cards, with an impact on card networks like Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) as well as card-issuing banks such as Citigroup (NYSE: C  ) .
  • Debt collection companies.
  • Debt relief services.
  • Student loan companies such as Sallie Mae (NYSE: SLM  ) .
  • Mortgage brokers -- but only those at banks above its $10 billion coverage line.
  • Credit bureaus Experian, Equifax (NYSE: EFX  ) , and TransUnion.
  • Payday lenders such as Advance America (NYSE: AEA  ) .

Unfortunately for both consumers and businesses, it's unclear exactly how much power the bureau will have and exactly what the CFPB intends to accomplish. Some lawmakers believe that the CFPB has too much power and not enough accountability, and therefore they want to rein in its enabling legislation to limit those powers.

For now, the CFPB is waiting to have a director named. Former Ohio Attorney General Richard Cordray has been nominated to fill the position, but the Senate must confirm Cordray before he can formally take the position and start to exercise many of the CFPB's powers.

What to expect
As a consumer, you can expect the CFPB to serve the useful purpose of being a focal point for troubles or concerns you have about financial products. If the bureau serves its purpose, then painfully long, incomprehensible contracts, disclosures, and other financial documents could get easier to understand -- or at least come with simpler explanations. Adapting to new regulations could cost financial businesses in the short run, but hopefully, they would prevent costly litigation and other disputes that stem from bad contracts now.

On the other hand, financial businesses have threatened that overregulation could lead to their having to shut down certain parts of their business. That's most especially the case for payday lenders, which serve a population of customers that most other financial businesses shy away from. Payday lenders argue that their fees are justified in light of the high risk that they take, and that caps on those fees could make it impossible for them to turn a profit. That would potentially leave a void in financial coverage -- one that more unsavory options could fill.

A new dawn
Perhaps the most important benefit of having the CFPB will be that consumers can stop worrying about how to navigate the complicated set of regulatory agencies at the federal, state, and local level that govern various financial institutions.

If the CFPB can end up acting as a consumer advocate within the government's bureaucracy -- much as the Taxpayer Advocate does for taxpayers dealing with the IRS -- then it will already have performed a valuable service for everyone. As for what else the CFPB may end up doing, a lot will depend on whether Congress changes the rules. You'll want to keep your eye on happenings at the CFPB to see how the new bureau evolves in the months and years to come.

What do you think? Will the CFPB be the next great thing or just another government flop? Spill your views with a comment below!

Fool contributor Dan Caplinger hopes the CFPB will do better than the mass of other regulators already out there. You can follow him on Twitter here. He doesn't own shares of the companies mentioned. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You just can't improve on The Fool's disclosure policy .


Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2011, at 4:10 PM, xetn wrote:

    Oh goody! We can never have enough regulation. And, it does such a great job; keeping all of those bad guys at bay. Lets see now, since the creation of the Federal Reserve, it has had primary responsibility of regulating its member banks. How'd that work out? And now, since they have done such a great job, they have been given more responsibility. Nothing like rewarding failure!

  • Report this Comment On July 24, 2011, at 4:34 PM, dbtheonly wrote:

    Saw a marvellous poster from despair.com. It showed two small children at some turn of the century factory machine. The caption read, "If not for Government interference, these children would still have jobs."

  • Report this Comment On July 24, 2011, at 9:31 PM, georgop wrote:

    Wonderful. Yet another regulatory agency. Milton Friedman is turning in his grave...

  • Report this Comment On July 25, 2011, at 2:02 PM, Tahtah4now wrote:

    Payday lenders loan to everyone, regardless of thier credit background, as part of their business model. Inevitably, some people may be irresponsible with paying them back. Regulating these lenders won’t protect certain people from making bad financial decisions.

  • Report this Comment On July 25, 2011, at 5:52 PM, stan8331 wrote:

    How dare those crazy politicians burden America with more regulation after we've recently seen first-hand how wonderful unregulated financial markets truly can be? Hyper-leveraged CDO's built on a foundation of poorly collateralized sub-prime mortgages are what this country is all about!

    There is always a very real risk of regulation going too far, but it's a cynical false dichotomy to suggest that our only choice is between laissex-faire caveat emptor capitalism and draconian, stifling over-regulation. For our economy to flourish, we need to be vigilant against both those approaches.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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