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
down to any institution with at least $10 billion in assets. (NYSE: JPM)
Credit cards, with an impact on card networks like Visa
and MasterCard (NYSE: V) as well as card-issuing banks such as Citigroup (NYSE: MA) . (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
, and TransUnion. (NYSE: EFX)
- 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!