It’s no secret that today’s world of banking is vastly different than it was just five years ago. With a heavy nod to the Great Recession, every element of the banking industry is now under a gigantic microscope – from both regulatory and consumer awareness standpoints ($5 debit fee backlash, anyone?). A big part of this microscope is the Dodd-Frank Wall Street Reform and Consumer Protection Act. It’s a mighty piece of legislation that gives some major muscle to enforcing banking reform. And the Consumer Financial Protection Bureau (CFPB) is a watchdog agency this Act created to effect real change to the American financial services industry.
Sounds like a lot of boring names and acronyms, right? But it’s really not that complicated. All it means is that there’s a powerful agency now looking out for us consumers and helping protect our financial well-being. We’re all for it and think it’s about time.
When the CFPB was created this summer, it set out to regulate activities by banks, but only those that fall in the traditional realm – large banks, thrifts and credit unions with assets over $10 billion. But in efforts to further protect consumers, the CFPB just expanded its reach to nonbanks, which it defines as any “company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter.” This includes thousands of businesses such as payday loan companies (you may have seen one in your local strip mall), mortgage companies (including foreclosure relief services) and private education lenders. And with 20 million consumers using payday loan services and 14% of all consumers having debt collectors on their tail, this expanded reach is profound.
So does this affect our day to day? Not really. But it does add some significant safeguards against people getting in over their heads financially or being bilked by unscrupulous businesses. Certain parts of the financial sector began resembling the Wild West (after all, a good part of the housing bubble was caused by subprime loans made through nonbank mortgage brokers), so having an agency that monitors the activities of a broader swath of finance-related businesses can only further help consumers make financially sound decisions.
What are your thoughts about this, Saver? Do you feel more confident knowing that there’s now more regulation over the financial sector, or do you think the government should step back and let consumers decide what’s best for themselves?
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