The Consumer Financial Protection Bureau has opened for business, its mailbox piled high with wish-lists from consumer advocacy groups about what the new agency should tackle first.
While consumer groups cheer the arrival of the CFPB, the banking industry and other financial services providers such as payday lenders, debt collectors, consumer credit bureaus and credit card issuers are less enthusiastic and worry that any new regulations could be costly and burdensome. Many Republican lawmakers share those concerns and have threatened to block the Senate nomination of Richard Cordray to head the agency.
Until the CFPB has a confirmed director in place, the bureau is limited to enforcing existing consumer protection regulations and generally cannot propose new rules.
Here is a closer look at some of the most common requests from consumer groups to the CFPB:
Make credit card offers easier to compare
Searching for the best deals on a credit card is notoriously difficult. Details on rewards programs are hard to find, and comparing fees and APRs is challenging because the box containing this key information looks different on each credit card company’s marketing materials. JPMorgan Chase & Co., for example, calls this box “Pricing and Terms” and places it in the middle of the page, while Citigroup Inc. places its “Terms and Conditions” on the upper left of the page.
The CFPB could help consumers by requiring a standard, one-page credit card contract. “The card issuers are marketing a product to consumers. Consumers shouldn’t have to hunt for information about interest rates and fees. Really, this is in the best interest of card issuers, too,” says credit card expert Beverly Blair Harzog on Credit.com.
End hidden fees on pre-paid debit cards
Pre-paid debit cards are largely unregulated and have surged in popularity in the past few years, especially among Americans lacking bank accounts. But many pre-paid cards carry a slew of small fees for adding funds to it, customer service phone calls, ATM withdrawals and card cancellation – all of which quickly add up if a consumer is unaware of all the fees.
The Consumer Federation of America says the CFPB should step in and ensure that consumers aren’t lured into buying cards that look cheap but carry hidden and unjustifiable fees. The agency should also make sure that prepaid cards are covered by the same consumer protections that apply to bank account debit cards, it says.
Move fast on debt collectors
There have been more complaints filed with the Federal Trade Commission on the debt collection industry than any other single industry, but that agency lacked the power to write regulations limiting debt collectors’ behavior. But the CFPB now has the authority and should use it to protect consumers from “overzealous debt collectors on a national scale,” writes personal finance expert Gerri Detweiler.
As a first step, the CFPB could require collectors to use a standard form letter with language that consumers can understand, Detweiler says. The agency could also rein in reckless debt buyers and collect data about complaints against debt collectors. Finally, the CFPB should create a do-not-call list so that consumers who believe they have no debt can stop being harassed, Detweiler says. And for debt collectors who have a valid reasons for calling? Try using U.S. mail, says Detweiler.
However, ACA International, an industry group representing about 5,000 debt collectors, has put together its own blueprint for “modernizing America’s consumer debt collection system.” The plan aims to improve communication between collectors and consumers by using email and mobile phones and to document and verify debt information. The group also wants Congress to create a federal law giving collectors seven years to sue debtors, which would replace state laws with widely varying limits on such lawsuits.
Stop banks from steering customers to costly overdraft protection
Some banks are still automatically approving debit card purchases at the cash register, then charging a $35 fee for customers with insufficient funds instead of denying the transaction. And many other banks automatically put consumers into the most expensive form of overdraft protection for checks and electronic payments, instead of a less-costly one.
The CFPB should “stop banks from tricking people into incurring overdraft fees,” says Americans for Financial Security and U.S. PIRG. While Federal Reserve rules require banks to get customer permission before enrolling them in an overdraft plan, the rules do not limit the excessive cost or frequency of fees banks can charge for overdraft protection programs. The bureau should also end banks’ manipulation of the order in which checks are processed to increase overdraft fees, the groups say.
Limit rollovers for payday loans
Payday loans are supposed to be for short-term emergencies to tide borrowers over until their next paycheck. But experts say this is rarely the case. A borrower’s payday loan is often rolled over numerous times, racking up steep interest rates and fees.
The CFPB could impose a strict limit on rollovers and total loans per customer per year, and limit certain types of advertising, says University of New Mexico law professor Nathalie Martin. The bureau also could require payday lenders to disclose terms and conditions more clearly. These disclosures “should be written or vetted by someone who teaches school at the level of the average reader in America,” Martin writes in CreditSlips.org.
Help college borrowers see exactly how much they owe
College students often are poorly equipped to manage their money. The CFPB could help by requiring lenders to inform students applying for a college loan exactly how much their monthly payments would be after graduation, and how much income they need to comfortably repay that amount, says personal finance writer Farnoosh Torabi of Credit.com. As part of the process for obtaining a federal student loan, the CFPB could also require applicants to fill out a worksheet of projected expenses and a budget.
To make students more aware of their debt, the CFPB could require lenders to send quarterly loan statements to borrowers throughout their college education, listing total debt, accrued interest and the current interest rate on the loans, says Mark Kantrowitz, publisher of FinAid.org. And to identify any patterns of abuse in private college loans, the CFPB could create a centralized clearinghouse to track complaints from student borrowers, he says.
Clean up mortgage servicing industry
Since the housing collapse three years ago, many Americans have faced aggressive practices by mortgage servicers who are primarily trained to collect payments rather than to help homeowners keep their houses. New reports surfaced this week that robo-signing of mortgage documents is still occurring in some states.
“Servicers falsify court documents because they have not kept the accurate records of ownership payments and escrow accounts that would enable them to proceed legally,” says Americans for Financial Reform and U.S. PIRG. “Our system for servicing mortgage loans is plagued with problems.” The CFPB should ensure that companies who collect mortgage payments keep accurate records of what each homeowner owes, do not charge illegal fees or enroll a homeowner in overpriced insurance, and do not make mistakes that push a homeowner into foreclosure, it says.
What are your suggestions for the CFPB? What would you like to see it tackle first? Tell us your thoughts in the comments below.
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