We now have a new federal regulatory agency, the Consumer Financial Protection Bureau or CFPB, which comes to us courtesy of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The formation of the CFPB is a major effort by the Obama administration to overhaul consumer protection regulations.
Although the Obama administration initially wanted the CFPB to be an independent agency, the new agency falls within the Federal Reserve System. This distinction does not impede the sweeping powers of the CFPB, however, since the Federal Reserve Board is prohibited from intervening in the CFPB’s rule making, examinations, and enforcement actions, and from appointing or removing CFBP employees.
Full power under one roof
The rule-making authority of various federal agencies under consumer protection statutes will be transferred to the CFBP, which will have far-reaching authority to adopt and enforce consumer protection regulations. The CFBP has been accepting the public’s ideas and suggestions for changes to the credit and lending industry until it gains full regulatory power this summer. The CFPB’s website presents a “consumer-friendly” page offering financial education and inviting questions and complaints from consumers.
The CFPB plans to bring transparency into the picture, according to Elizabeth Warren, Special Advisor to the Secretary of the Treasury on the CFPB.
“One way consumers have tried to empower themselves is by knowing their credit scores. We are assessing whether purchasing a credit score provides a consumer with the information he or she needs,” Warren explains.
Changing credit scoring systems
One of the first requirements of the act was an examination of the differences between the credit scores sold to consumers and the credit scores that financial institutions use in credit decisions. The CFPB’s report covers the process of developing credit scoring models, why different models often produce different scores for the same person, and how the differences in scores provided to creditors from those given consumers may disadvantage the consumers. The report addresses the general lack of information consumers have about credit scoring, finding that many people are unaware that their credit score represents the risk of not repaying a loan. The CFPB, in the wake of its report, is gathering data from each of the three national credit reporting agencies, including FICO scores, to make comparisons.
On Feb, 16, 2012, the CFPB announced a proposed rule to include debt collectors and consumer reporting agencies under its non-bank supervision program. This is the first time these financial service providers outside the banking industry have come under this type of regulation.
This is a significant move where consumers are concerned, because the three largest credit bureaus house financial information on more than 200 million Americans, according to Forbes.