are "Four Ds" that plague consumers, the Director of the Consumer Financial
Protection Bureau told an audience of Bankers on Tuesday; deceptive marketing, debt
traps, dead ends, and discrimination. Richard Cordray, speaking to the American
Banker Regulatory Symposium, said that from the perspective of the Bureau, sensible
rules of the road, appropriate market oversight, and evenhanded enforcement
empower the American consumer. In order to ensure that the financial
marketplace functions properly consumers need to be educated and informed, CFPB
needs to complete the work it has started with mortgage regulations, and it
needs to address those Four Ds.
cannot make sound financial choices if they are deceived by false or misleading
information which Cordray says happens with surprisingly frequency in the
financial marketplace. It happened, for example in the years leading to
the financial crisis when some lenders marketed mortgages with misleading
teaser rates and many homebuyers ended up with complicated mortgage products
they did not understand and could not afford; products they might have avoided had
they known better.
consumers are confused rather than deceived because relevant information is
buried in pages of fine print or written in language that requires an advanced
degree to decipher. "Various providers may describe the same fee very
differently, making comparisons numbingly difficult," he said.
response the CFPB's "Know Before You Owe" effort is attempting to make
information more accessible and more understandable. However disclosure is only half the solution
so the Bureau has taken action against deceptive sales pitches, notably against
credit card companies and has put more than $700 million back in the pockets of
over 8 million consumers so far.
Director said debt traps can put consumers into a downward spiral that deeply
undermines their personal finances. People in a tough situation
with nowhere else to turn may think their only option is to use products
marketed as short-term solutions where the fees can seem small compared to the
pressing need for quick cash. But when
the payment comes due or is automatically taken from their accounts, they may
not have enough money to repay the debt, the fees and their living expenses so
they borrow again, initiating a vicious cycle.
has been analyzing these products and their markets, Cordray said, and payday
lenders are now supervised for the first time at the federal level. There is an obvious demand for small-dollar
credit products and the challenge is how best to protect consumers while
preserving access to them.
"D" are markets that create frustrating and damaging "dead ends" where
consumers cannot chose the businesses they must deal with and thus lack the
control of being able to sever their ties, even though those markets and can
have a profound influence on their lives.
Debt collection is one example. There are many legitimate debt
collectors, Cordray said, but we have all heard the horror stories about constant
phone calls or falls threats of arrest. These
tactics are indefensible, he said; people deserve to be treated with dignity,
even if they do owe a debt.
are other markets in which consumers face problems because they cannot "vote
with their feet." Mortgage servicing has
presented millions of people with unwelcome surprises and constant runarounds,
improper fees, and needless loss of their homes. Credit reporting agencies also hurt consumers
who have little or no say in decisions made about their credit reports. "At
the Consumer Bureau, we recognize that effective oversight through supervision
and enforcement is needed to help protect consumers against these potential
dead-ends," Cordray said. "We plan to
achieve just that. And where we determine that regulations are the
appropriate tool for addressing these issues, we will act accordingly."
the fourth "D," discrimination is a clear focus for the Bureau. There are too
many instances of consumers being treated unequally because of characteristics
like race or gender and from the perspective of a consumer, it makes no
practical difference whether the discrimination that harmed him was intended or
not. The Bureau has made it clear we
will pursue discrimination in financial markets based on disparate impact as
well as disparate treatment and that lenders are responsible for the operation
of their lending programs even if there is a middleman between them and the
borrower. The bottom line is that every consumer should have equal access
to credit, as required by law. Cordray said the Bureau will also be examining
the way financial institutions provide information under the Home Mortgage
Disclosure Act (HMDA), both to improve the categories of information that are
gathered and to ease the operational and technological burdens on industry to
comply with this law.
Bureau plans to use all of its tools, supervision, enforcement, and rulemaking,
along with consumer education initiatives to address the Four Ds in the
financial marketplace as well as continuing to study other issues consumers are
facing. But at the same time, Cordray
said, we recognize that consumers bear their own share of responsibility for
how they participate in the financial marketplace. They need to position themselves to make
sensible decisions that they can live with over the course of their
lives. "They need to recognize that the best form of consumer protection
is self-protection: avoiding problems before they occur and the damage is
concluded by emphasizing the need for a consistent and sustained emphasis on
financial education. "Every year, we send thousands of young people out
into the world to survive on their own, with little or no training in the kinds
of decisions they must make to succeed financially. That is a
self-defeating approach in any free society ordered around a free market
economy, and we simply have to face up to our current failures and insist on
doing better - in our schools, in our workplaces, and in our houses of worship".
He said the Bureau will be working very hard to bring more visibility and sense
of urgency to this topic and to insist on making tangible progress for the
American people in the years ahead.