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These Four "D's" Plague Consumers Seeking Credit -Cordray

by devteam September 25th, 2013 | Share

Therernare “Four Ds” that plague consumers, the Director of the Consumer FinancialrnProtection Bureau told an audience of Bankers on Tuesday; deceptive marketing, debtrntraps, dead ends, and discrimination.    Richard Cordray, speaking to the AmericanrnBanker Regulatory Symposium, said that from the perspective of the Bureau, sensiblernrules of the road, appropriate market oversight, and evenhanded enforcementrnempower the American consumer.  In order to ensure that the financialrnmarketplace functions properly consumers need to be educated and informed, CFPBrnneeds to complete the work it has started with mortgage regulations, and itrnneeds to address those Four Ds.   </p

Consumers<bcannot make sound financial choices if they are deceived by false or misleadingrninformation which Cordray says happens with surprisingly frequency in thernfinancial marketplace.  It happened, for example in the years leading tornthe financial crisis when some lenders marketed mortgages with misleadingrnteaser rates and many homebuyers ended up with complicated mortgage productsrnthey did not understand and could not afford; products they might have avoided hadrnthey known better.</p

Sometimesrnconsumers are confused rather than deceived because relevant information isrnburied in pages of fine print or written in language that requires an advancedrndegree to decipher.  “Various providers may describe the same fee veryrndifferently, making comparisons numbingly difficult,” he said.</p

Inrnresponse the CFPB’s “Know Before You Owe” effort is attempting to makerninformation more accessible and more understandable.  However disclosure is only half the solutionrnso the Bureau has taken action against deceptive sales pitches, notably againstrncredit card companies and has put more than $700 million back in the pockets ofrnover 8 million consumers so far.  </p

ThernDirector said debt traps can put consumers into a downward spiral that deeplyrnundermines their personal finances.   People in a tough situationrnwith nowhere else to turn may think their only option is to use productsrnmarketed as short-term solutions where the fees can seem small compared to thernpressing need for quick cash.  But whenrnthe payment comes due or is automatically taken from their accounts, they mayrnnot have enough money to repay the debt, the fees and their living expenses sornthey borrow again, initiating a vicious cycle.</p

CFPBrnhas been analyzing these products and their markets, Cordray said, and paydayrnlenders are now supervised for the first time at the federal level.  There is an obvious demand for small-dollarrncredit products and the challenge is how best to protect consumers whilernpreserving access to them.   </p

Anotherrn”D” are markets that create frustrating and damaging “dead ends” wherernconsumers cannot chose the businesses they must deal with and thus lack therncontrol of being able to sever their ties, even though those markets and canrnhave a profound influence on their lives. rnDebt collection is one example. There are many legitimate debtrncollectors, Cordray said, but we have all heard the horror stories about constantrnphone calls or falls threats of arrest.  Theserntactics are indefensible, he said; people deserve to be treated with dignity,rneven if they do owe a debt.</p

Therernare other markets in which consumers face problems because they cannot “voternwith their feet.”  Mortgage servicing hasrnpresented millions of people with unwelcome surprises and constant runarounds,rnimproper fees, and needless loss of their homes.  Credit reporting agencies also hurt consumersrnwho have little or no say in decisions made about their credit reports.  “Atrnthe Consumer Bureau, we recognize that effective oversight through supervisionrnand enforcement is needed to help protect consumers against these potentialrndead-ends,” Cordray said.  “We plan tornachieve just that.  And where we determine that regulations are thernappropriate tool for addressing these issues, we will act accordingly.”</p

Combatingrnthe fourth “D,” discrimination is a clear focus for the Bureau. There are toornmany instances of consumers being treated unequally because of characteristicsrnlike race or gender and from the perspective of a consumer, it makes nornpractical difference whether the discrimination that harmed him was intended orrnnot.   The Bureau has made it clear wernwill pursue discrimination in financial markets based on disparate impact asrnwell as disparate treatment and that lenders are responsible for the operationrnof their lending programs even if there is a middleman between them and thernborrower.  The bottom line is that every consumer should have equal accessrnto credit, as required by law.  Cordray said the Bureau will also be examiningrnthe way financial institutions provide information under the Home MortgagernDisclosure Act (HMDA), both to improve the categories of information that arerngathered and to ease the operational and technological burdens on industry torncomply with this law.</p

ThernBureau plans to use all of its tools, supervision, enforcement, and rulemaking,rnalong with consumer education initiatives to address the Four Ds in thernfinancial marketplace as well as continuing to study other issues consumers arernfacing.   But at the same time, Cordrayrnsaid, we recognize that consumers bear their own share of responsibility forrnhow they participate in the financial marketplace.  They need to position themselves to makernsensible decisions that they can live with over the course of theirrnlives.  “They need to recognize that the best form of consumer protectionrnis self-protection:  avoiding problems before they occur and the damage isrndone.”  </p

Cordrayrnconcluded by emphasizing the need for a consistent and sustained emphasis onrnfinancial education.  “Every year, we send thousands of young people outrninto the world to survive on their own, with little or no training in the kindsrnof decisions they must make to succeed financially.  That is arnself-defeating approach in any free society ordered around a free marketrneconomy, and we simply have to face up to our current failures and insist onrndoing better – in our schools, in our workplaces, and in our houses of worship”. rnHe said the Bureau will be working very hard to bring more visibility and sensernof urgency to this topic and to insist on making tangible progress for thernAmerican people in the years ahead.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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