The Great Recession ushered in a new era of lawmaker largesse and regulatory reaction. The Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau (CFPB), which will be operational in July.
It’s safe to assume the new bureau will be as objective on most matters as a Little League coach is about his players. It’s a problem common when governmental agencies move from referee to proponent.
The jury’s still out on what the CFPB will tackle first. My guess: lunch, then dinner. After that, I’d suggest they investigate:
1. Credit scores: The proverbial corporate “we” had a great idea a few months ago—putting members’ current and historical credit scores on their home banking pages. The goal was simply education. At my credit union, this grandiose idea lasted all of 24 hours before our primary credit bureau not only said “no” but also, “Oh my goodness, if you do that the ice caps will melt, tides will rise, and our 747 jumbo jet might run out of fuel!” (Actually, I might have mixed up their response with one by Al Gore).
2. Disclosures: Did you know the trees cry every time we make a loan? They must, considering the pages and pages of required disclosures. It truly shouldn’t be this way. But it seems every business cycle creates a new set of “victims” (also known as “those who don’t read their loan documents”). In logic unique to the regulatory environment, officials determined the best way to protect consumers from not reading their disclosures is to create more disclosures.
3. Mortgages: Nobody, to my knowledge, really understands what happened in the mortgage market over the past few years. While there were certain “oversights” (the states of California, Arizona, and Florida come to mind), I’m guessing that putting a government panel in charge of looking into the matter is a bit like installing a screen door on a submarine.
4. Nondepository institutions: A long time ago, the only nondepository institution that lent money was named “Shorty” and had an odd way of collecting past-due amounts. Today the market is full of firms vying for business—mostly with very little oversight.
5. Student lending: When my daughter came home from college the first time, she had a new shirt, a Frisbee, and various other stuff—all courtesy of a large bank. Oh yes, and of course a $1,000 credit card at 21.9% interest. The bank offered her student loans, too, proposing them as a better deal than “those federal loans.”
If our college kids had decent math skills I wouldn’t be worried. But this is the same girl who, until eighth grade, said “eleventeen.” I’m not proposing banning student credit, but perhaps the lenders should be required to give every freshman who signs up a shirt that says, “I’m not WITH Stupid, I AM Stupid!”
Like all things in Washington these days, the CFPB’s future is murky. There’s a strong chance the new Republican majority might fold, spindle, and mutilate the bureau.
Ultimately, however, it’s not what lawmakers tackle that will determine their fate, but their assumptions going in. If they believe consumers can make good decisions based on clear facts, we should be fine. In this case, the CFPB’s goal of providing clear and concise direction will benefit consumers.
But if they don’t, then here we go…again.
JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740.