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Summary of the Proposed CFPA_0

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Summary of the Proposed CFPA_0 Powered By Docstoc
					What is the Obama Administration’s
Consumer Financial Protection Agency?
   The Consumer Financial Protection Agency, or CFPA, is a
    newly proposed independent federal agency that would, if
    established, have single, primary authority to protect
    consumers with respect to financial products and services,
    other than investment products.

   It would have supervisory, examination and enforcement
    authority for protecting consumers with respect credit,
    savings, payment and other financial products and
CFPA’s Mandate

   Ensure that consumers of financial products:
       Have the information they need to make wise
        financial decisions
       Are protected from abuse, discrimination, and
        unfair and deceptive practices
       Have access to financial services
       And, ensure the financial services market operates
        fairly and efficiently
     Significance of the CFPA?

   Given the scope and ambition of this proposal, this is a
    game changer for the financial services industry.

   The proposal says: consumer protection is a high priority
    for the federal government, and it will work in coordination
    with other agencies and the states to ensure that financial
    products that are fair, transparent, and suitable for the

   Success will depend upon dedicated staff, resources, and
    enormous coordination throughout the federal government
    and the states.
Why is a CFPA Needed?

   The old rules to protect consumers
    don’t work

   Financial products are too complex
       the terms and conditions, even the disclosures, are far from
        clear and transparent;
       the incentives of the provider and the consumer’s needs may
        be misaligned
       consumer often doesn’t have the experience or knowledge to
        know where to go to get the information needed to navigate
        the array of product options.
    Products: Mortgages

   Consumers face an array of mortgage options that come with wide
    variations in rates, terms, penalties, and conditions.

   In year’s past, mortgages were originated by banks. But as of late, the
    majority of mortgages are sold by mortgage brokers.

   These companies have existed largely outside of the banking regulatory
    system with respect to consumer protections.

   Compounding the issue for the consumer is the fact that mortgage
    brokers have incentives - the yield spread premium - to sell the
    consumer a product that isn’t necessarily the most suitable or lowest cost
    for them.

   To successfully navigate navigate this maze, consumers not only need to
    figure out the product options that suits their need, but also who is
    selling the product, what motivates that seller, and whether there are
    rules to ensure the seller is offering a product that is fair and
     Products: Bank Accounts

   Even basic bank accounts are commonly fraught with
    unexpected costs, in the form of surcharges at ATMs,
    under balance fees, and the big one, overdraft charges,
    which cost are on average about $35 per check.

   As overdrafts currently work, an accountholder is
    automatically over drafted, with the payment completed
    and the account debited for the overdraft charge.

   These kinds of charges which can rack up to hundreds of
    dollars in the course of a month can tip a family that’s just
    making it into serious financial hardship.
    What would the CFPA Do?
   Have authority over depositories and other firms with the
    offering of financial products, thus significantly increasing the
    scope of a federal regulator with respect to financial products

   It would promote effective regulations, with periodic reviews of
    those regulations

   With respect to states, it would set a floor in terms of consumer
    protection, and

   It would empower states to adopt and enforce the federal laws
    and rules, and when necessary, adopt stricter consumer
    protection laws

   It would coordinate enforcement with the states and the
    Department of Justice
     The CFPA’s Authority
   Require that all product disclosures and communications
    be reasonable, balanced, and clear and conspicuous - and
    this would be based on significant consumer research and

   Define standards for “plain vanilla” products, such as
    mortgages, bank accounts, and credit cards. These
    products would have straight forward pricing.

   Have authority to place tailored restrictions on product
    terms and provider practices

   Enforce fair lending laws and the community Reinvestment
    Act to ensure underserved communities and consumers
    have access to prudent financial services.
    CFPA Staffing?
   The staffing plan for this agency is to consolidate the
    consumer protection staff from the federal banking
    regulators: the Office of the Controller of the Currency,
    the Federal Reserve Board, Office of Thrift Supervision,
    and the FDIC.

   Ballpark estimate: could be as many as 1K staff in the new

   Funding the agency: Funding may come from fees
    assessed on the regulated entities and transactions.
Where will it fall in the
federal government system?
   The Obama Administration envisions the CFPA to be
    established as an independent federal agency, similar to
    the Securities and Exchange Commission.

   Director and a Board, and one of the Board seats will be
    reserved for one of the prudential regulators.

   Advisory Panel, to promote CFPA’s accountability and
    provide useful information on emerging industry trends
    Challenging Issues

   Securing sufficient funding

   Coordinating with other regulators

   Coordinating with states on regulations,
    supervision, and enforcement

   Ensuring that consumer protections are put in
    place, but in a way that does not stifle
    innovation, curtail financial services to lower
    income families, and overwhelm institutions with
    regulatory requirements
What’s on the Horizon for the CFPA?

   Senate held hearings last week
   House will hold hearings this week
   Does the House try to move the
    Consumer Financial Protection Agency
   And then the bigger issue is whether the
    Senate will buy a bill that isn’t the
    comprehensive financial regulation

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