Federal consumer watchdog still in the crosshairs

The federal agency in charge of protecting consumers and their finances from predatory and misleading lending practices recently turned a year old, but some lawmakers are still dubious about its positive effects.

The U.S. Consumer Financial Protection Bureau gained full regulatory power on July 21, 2011, but lawmakers are concerned that the agency isn’t doing enough to reverse troubling trends in the credit markets, according to a report from the news site Politico. The CFPB has made numerous reforms in its full year of having regulatory power over banks and many non-bank financial institutions alike, but a recent hearing showed that Republicans on the House Oversight and Government Reform Committee aren’t impressed.

Issues with the CFPB

In particular, the lawmakers quizzed CFPB director Richard Cordray, who has been in office since early January, as to why millions of Americans were still finding it so difficult to obtain mortgages and small business loans since the end of the recession, the report said. Both these markets have been quite stagnant since the downturn ended, even as different types of lending such as credit cards and auto financing have expanded considerably, and now include many subprime borrowers.

Cordray explained that many of the rules the agency has designed to help encourage more lending and better borrowing conditions for consumers have been advanced, but not finalized, the report said. Once the new agency rules were fully set, it would be much easier to see how large of an impact they would have.

Further, Cordray defended his agency by saying that the current difficulties many consumers may find in obtaining certain types of financing come because many lenders are simply still being cautious with more sizable financing, the report said. While the economy has undoubtedly improved considerably since the end of the recession, the difficulties experienced in the last few years may give many financial institutions pause when extending mortgages and small business loans because of the dollar value of them.

Cordray also noted that no amount of government regulation will make these financial institutions more likely or willing to extend that kind of financing, the report said. The agency’s primary goal is to protect consumers from questionable lending practices, not encourage banks to extend financing.

Cordray fires back

GOP lawmakers also wondered aloud whether the CFPB’s work might actually further inhibit lending, because financial institutions might be scared off by the heavier regulation, the report said. Cordray, for his part, responded that it’s difficult to both create the kinds of rules that protect consumers and shield financial institutions from lawsuits while simultaneously keeping them brief. Of particular concern was a recent regulatory document from the CFPB regarding mortgage oversight, which checked in at more than 1,100 pages.

In general, experts believe that Cordray and the CFPB must walk a fine line, the report said. On the one hand, his agency cannot be viewed by banks or Republican lawmakers as being too restrictive and constraining the economy, but it must simultaneously create rules that help to prevent another massive financial crisis like the one that began a few years ago.

“You can’t look at what happened in 2007 and 2008 without realizing that we need common-sense reforms,” Cordray told the lawmakers, according to the site. “The notion that everything is fine and we should just get the government out of the way does not square with the facts.”

Republicans have generally been opposed to the operations of the CFPB since the agency was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Many said that an agency with one top executive (Cordray got the job about six months after the agency gained regulatory power) would wield too much power, and that it should instead be headed by a small committee of experts and lawmakers.

While the CFPB has given consumers considerable protections when it comes to dealing with their finances, Americans must still take it upon themselves to do their due diligence and maintain healthy borrowing profiles on their own.

For instance, it can be extremely helpful to know your credit score, and be aware of the many factors that both contribute to it and result from it. For instance, if you have a low rating and do not take steps to raise your credit score, you might find that it’s difficult or even impossible to qualify for particular lines of credit you may be interested in opening, especially if they’re of considerable size.

Fortunately, one great way that you can raise your credit score is simply by making on-time payments every month, and taking greater efforts to reduce your outstanding credit card balances. These are the two largest factors that go into making up your credit score, so getting them straightened out will be key to having a strong standing.

Posted in Finance
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