> Posted by Sergio Guzmán
Consumer protection is here to stay. That’s one of the messages we can read into the recent nomination of Richard Cordray to head the US Consumer Financial Protection Bureau (CFPB).
Cordray, a former attorney general and state treasurer of Ohio, has been working at the CFPB’s enforcement division for the past six months. He’ll need to go through the confirmation process before taking over.
The nomination took place almost a year after the CFPB was established by President Barack Obama. It was also just days before many of the items in the Dodd-Frank Act — the major financial sector reform legislation that created the bureau — went into effect.
This being Washington, it is unimpressive (though not surprising) how little discussion there’s been around what the CFPB is going to do. All the talk has been about the political ramifications of the choice of whoever was appointed — and in this case, the choice of whoever was not appointed. Elizabeth Warren, a Harvard law professor and chief advocate of the creation of the agency, was not selected to head the CFPB. According to the Washington Post article “Elizabeth Warren: ‘Wicked smart’ and on her way out,” many Republicans in Congress and Wall Street lobbyists in Washington had expressed reservations because of her outspokenness and their sense that she might be too strongly anti-provider.
The CFPB was established after the financial downturn, crisis, meltdown – whatever you want to call it. There was a recognition that many financial services providers were stepping all over consumers of credit cards, mortgages, and other financial products with fine print, complex language, hidden fees, and reckless lending. These practices, along with poor underwriting and complex financial schemes (derivatives trading, credit default swaps, and collateralized debt obligations) were among the causes of the financial mud that we were all dragged through.
After many, many hurdles, the Dodd-Frank Act was passed in spite of strong opposition from Wall Street firms and financial industry advocates. It’s a sign that consumer protection has finally taken root. Instead of opposing these protections, financial institutions should be proactive in incorporating client protection into their practices. In microfinance, we are encouraging financial service providers to do this by endorsing the Smart Campaign and using some of the tools that are available on the campaign’s website.
The world is taking note of what is going on in the US, and some countries are even taking different approaches that remain consistent with the message that clients of financial services must be protected from lending practices that put consumers at risk. We hope that Mr. Cordray is successful in leading the new bureau to deliver on its promises, so that consumers can be sure they understand the contracts they are signing, and so that financial institutions don’t get away with reckless lending.
Image credit: TakingITGlobal
Have you read?
An Open Letter to Elizabeth Warren
The G-20 Chimes In on Client Protection
What ‘World Consumer Rights Day’ Means for Financial Inclusion