Personal Finance: Consumer unit fosters high hopes

If you've ever thought someone was playing fast and loose with the rules on your credit cards, credit score, or mortgage, but you had no idea where to go with your complaint, you now have a place to turn.

The Consumer Financial Protection Bureau is supposed to stop lenders from tricking you into a high-interest loan or some other financial product that is not what it appears to be. It also gives consumers an outlet for complaints on such things as student loans and payday lenders.

But, as you might suspect, given its power to regulate banking practices, the bureau's birth has not been greeted with celebration by those fearful about constraints on their business.

Harvard law professor Elizabeth Warren laid the groundwork for the agency through a temporary position over the last few months. Warren is a true believer in consumer protection who thinks banks and other lenders should make their billions honestly rather than by confusing people into financial messes.

She has a history of making comments such as, "You can't buy a toaster today that has a 1 in 10 chance of bursting into flames, but you can get a credit card that has the financial effect of a 1 in 10 chance of bursting into flames."

Being a true believer and plain talker hasn't played well with the financial industry, and after a massive lobbying effort against Warren, President Obama decided to instead nominate Richard Cordray, the former attorney general of Ohio, to oversee the agency.

That probably means a longer period of political fighting and less power to protect consumers because financial interests raise the "same complaints against Cordray as Elizabeth Warren," said Travis Plunkett, legislative director of the Consumer Federation of America, which promotes consumer protections.

"The Consumer Financial Protection Bureau was created because massive regulatory failures by federal banking and consumer regulators led to a proliferation of unfair and unsustainable lending practices, particularly in mortgage and credit card sectors," he said.

One recent change gives people the right to see their credit score if a lender denies them a loan or card or offers one with a high interest rate. In addition, people can see where they would need to rank to get better terms.

Among some of the practices Plunkett and other advocates want the bureau to clean up are:

Unfair bank overdraft charges. Some banks manipulate the order of the checks they clear. By clearing a large check first and then many small ones, the bank can charge overdraft fees for each. Yet an individual may not have written many checks on an empty account.

Fees on prepaid cards. While new rules require credit cards to give consumers more clarity on fees and penalties and avoid practices such as changing due dates on payments to trigger fees, prepaid cards are not subject to much regulation. The Consumer Federation objects to a "dizzying array of fees" that may not be clear to consumers.

Deceptive practices involving business credit cards. When new rules stopped lenders from putting "hair-trigger penalties" on regular credit cards, the Pew Charitable Trusts claims, lenders started pushing cards to small businesses because the rules do not apply to cards designated for businesses. As a result, penalties can take business owners by surprise.

Foreclosure and mortgage-servicing abuses. The bureau can write and enforce rules to stop what consumer advocates call "wrongful foreclosure" and ensure that the mortgage-servicing companies follow legal procedures when foreclosing.

Internet payday lending. Consumer advocates complain that these lenders are not adequately regulated and prey on desperate consumers.

Part of the problem with enforcement has been that seven agencies have had pieces of responsibility but often not full responsibility.

Now, the focus on consumers is clear, and banks fear the regulation that might be coming.


Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.