Treasury Notes

 Dismantling the Myths Around Wall Street Reform - Day 3: The Consumer Financial Protection Bureau

By: Anthony Coley

This week on the blog, we’re examining some of the false claims about Wall Street Reform.  On Monday we discussed small banks, and Tuesday we took a look at U.S. competitiveness.  Today’s myth:

Myth #3: The Consumer Financial Protection Bureau (CFPB) Is Bad for the Financial System


The CFPB was created for a simple reason: to make sure Americans understand the terms and conditions of financial products.  In the system we had before, consumers were too often pushed into loans they couldn’t afford or didn’t understand, and often had to choose between one misleading offer and another.  That’s not fair.  When people take out a mortgage to buy a home, pick out a credit card, or set up a bank account, they should understand the services to which they are entitled and  receive a clear description of the fees they are being charged.

By limiting unfair, abusive and deceptive practices, promoting clear disclosure, and giving consumers the information they need, the CFPB will help Americans make smart, informed financial decisions.  Yet despite these important responsibilities, the CFPB remains controversial among some in Congress and the financial industry.  

Some critics say that the CFPB is complicating regulation or putting new burdens on lenders.  In fact, one of the CFPB’s most important jobs is to simplify disclosure—which is better for everyone.  The CFPB has already launched an initiative, Know Before You Owe, to simplify and combine two federally required mortgage disclosure forms (TILA and RESPA).   There’s no doubt that one, simplified form is better for lenders and consumers alike.  That’s not more regulation—it’s simplified regulation and smart regulation. 

Other critics make the claim that the CFPB is hurting small banks.  But as we explored in our first post this week, the regulators of community banks will bear responsibility for enforcing one set of rules issued by the new CFPB, allowing small banks to avoid the burden of multiple exams.  Furthermore, the CFPB is helping to level the playing field between small banks and nonbank financial service providers.  For too long, banks were playing by one set of rules, while other parts of the financial industry, like payday lenders or independent mortgage brokers, were playing by another, often with little or no oversight. 

But in order for the CFPB to make sure that everyone is subject to the same clear and fair set of rules, it needs a Director.  Senate Republicans must drop their opposition to Rich Cordray’s nomination as Director, so that CFPB can do its job—empowering Americans to make real choices, and leveling the playing field among financial institutions.  Without a Director, the CFPB is handicapped from exercising its full authority, because nonbank financial service providers will be allowed to function without the necessary oversight.  That’s not acceptable.  It’s not good for our financial system, and it’s not good for the American people.

Those are the facts.

Anthony Coley is Deputy Assistant Secretary of the Treasury for Public Affairs.

You can contribute your thoughts to the CFPB’s Know Before You Owe Initiative here, so the CFPB can help advocate for you.
Posted in:  Wall Street Reform
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