Republicans In Congress Concerned About CFPB's Power

The Consumer Financial Protection Bureau opens next month. The new federal agency was created in the wake of the financial crisis, and it's charged with creating and enforcing consumer financial protection laws. Even before the agency starts operating, there is a great deal of controversy about its reach. Host Michel Martin discusses the CFPB and how it will change things for consumers with NPR business reporter Tamara Keith and Money Coach Alvin Hall.

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MICHEL MARTIN, host: Now to a conversation about personal finance, especially about keeping our money safe. The Consumer Financial Protection Bureau, or CFPB, opens for business next month.

This new government agency was created by lawmakers in the wake of the financial crisis. The CFPB's objective is to create and enforce federal consumer financial protection laws, as well as to promote financial education for consumers. But lawmakers are still squaring off over how the agency should be run and how much power it should have.

We wanted to know how this debate over the Consumer Financial Protection Bureau's power could affect consumers, so we've called upon NPR business reporter Tamara Keith and our regular contributor on matters of personal finance and the economy, our money coach Alvin Hall. Welcome to you both. Thanks for coming.

TAMARA KEITH: Thank you.

ALVIN HALL: You're welcome.

MARTIN: Tamara, why don't you just start by telling us what kinds of problems lawmakers hoped the CFPB would solve?

KEITH: Well, think mortgages here. Remember, as the housing bubble was inflating, there were some crazy mortgages out there. We had 228s and exploding arms and interest only and subprime loans going to people with perfectly good credit. The paperwork was confusing. People didn't know what they were signing. And now, we have this rampant foreclosure problem that's still going on.

The idea of the CFPB is to improve the clarity, to make it easier for people to understand what they're getting into. Not just with mortgages, but with all kinds of financial products. And also, it's basically to be a cop on the beat for consumers. The primary job will be to look out for consumers and consumers first, looking for unfair, deceptive, abusive practices.

MARTIN: So, why is there so much opposition to that that seems like that would be a fairly simple proposition. I mean, there's an FDA to protect consumers and food safety. Why is this so controversial?

KEITH: Well, I would say that the controversy, in some ways, has been settled. And that this agency was created through legislation. That has been settled. The financial industry, the people have opposed it in the past are saying, yes, OK, we know this is going to happen. We know this needs to happen. They've changed their tactics now. And the new discussion is about how much power it should have and how much independence it should have.

And there are real concerns out there being expressed by the business community, the financial industry and primarily by Republicans in Congress saying, you know, this is too independent. It shouldn't have just a single director. It should have a commission like other organizations and other things like that. But it shouldn't have unlimited budget powers.

MARTIN: Does it?

KEITH: Not exactly. It does have fairly broad budget powers. But there are limits to it. This is one of those things where the left and the right are looking at the same thing and seeing it very, very differently.

MARTIN: Now, Harvard professor Elizabeth Warren has been tapped as a special adviser to the president to set up the agency, but she hasn't actually been nominated to run it. And, really, nobody's been nominated to run it to this point. So, why has she become such a lightening rod? Is it really about her? Or is it really about the structure of the agency?

KEITH: Well, she has always been a lightening rod. She has been a lightening rod for years. Consumer groups love her. She's incredibly articulate about the needs of consumers.

The financial industry and business groups are scared of her in some ways. They won't say that out front. But, you know, in background conversations I've had with folks, they say they're concerned that maybe she doesn't fully understand their industries and that there could be unintended consequences.

MARTIN: Alvin, you're in New York and you've worked on Wall Street and you obviously follow the issues pertaining to consumers very closely, so what's your take on this?

HALL: I think that the industry is afraid of her, as they're always afraid of any new change. And they argue that this change will have unintended consequences. Well, all change does.

But, clearly, given what has happened in the past, consumers do need protection. You look at simple things like credit card statements, they're very difficult to understand for the average person and they always contain these little bitty clauses that put a lot of power in the hands of the lender. People need to be made aware of what they sign and all the details in simple, straightforward language.

MARTIN: From your perspective, Alvin, as a person who's been working in financial education for some time and you also sort of train people, what are some of the issues that you think that this new agency should address immediately?

HALL: It needs to make sure that all of the lending statements are in clear, straightforward language. That the key points are highlighted and that the people who are selling this product are able to explain this information to people, to the borrowers in very clear terms.

MARTIN: But on the other hand, Alvin, over the past couple of years, lawmakers have already enacted new legislation to protect consumers. There's the Card Act, which was designed to reign in excessive interest rates on credit cards. The Federal Reserve wrote new rules limiting overdraft fees on debit card purchases. So there have already been moves to, well, advocates would say level the playing field for consumers, so what else does this agency need to do?

HALL: It needs to go in and make sure that when new products are created, or new lenders or new people involved in this system come about, that they do not seek to exploit the public.

MARTIN: Now, there are a number of Republican bills, Tamara, in Congress, that would reshape the agency among the proposals. The agency would be run by a board of directors rather than a single person, that Congress would control the budget. And so, do any of these proposals have any steam behind them?

KEITH: I don't think that there is anything that is actually going to make it through the Senate, which is controlled by Democrats. And certainly won't get signed by the president.

However, there is something interesting happening in the Senate. Forty-four Senate Republicans signed a letter saying they would not confirm any nominee, not just Elizabeth Warren, any nominee to be the head of the Consumer Financial Protection Bureau, unless these changes are put into place.

MARTIN: Which changes specifically? The ones I just described?

KEITH: Yeah, exactly.

MARTIN: So they're saying that they're taking a tough stance on appointing anybody to that agency. So, final question to you, Tamara. If the agency is supposed to be created, be born next month...

KEITH: Go live.

MARTIN: Go live next month, how is it going to operate if there's no director and if there's still so much disagreement about how it's supposed to function?

KEITH: Well, it won't be fully functional. That's the thing. It is currently housed in the Treasury Department. It will stay in the Treasury Department instead of becoming more independent. It will gain some new powers, but it won't gain some of the very powers that Alvin's been talking about. It won't be able to write new rules to prohibit unfair and deceptive practices. It won't be able to set up these new disclosure forms for credit cards or for mortgages. So a lot of the things that it was designed to do it won't be able to do without a director.

MARTIN: Tamara Keith is a business reporter for NPR. She joined us here in our studios in Washington, D.C. Alvin Hall is our regular contributor on matters of personal finance and the economy. He joined us from our bureau in New York. Alvin, Tamara, thank you both so much for joining us.

KEITH: Thank you.

HALL: Thank you.

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