Protecting consumers from deceptive or unfair bank activities
A cornerstone of the new law is the creation of the Consumer Financial Protection Bureau (CFPB). The CFPB is the first federal financial regulator with only one job, protecting consumers. It has authority over any firm – bank or non-bank – selling financial products. The new bureau exists to ensure that existing laws are enforced that protect you from deceptive and unfair banking practices.
For years, many of those laws have gone unenforced because consumer protection was not a priority for the government. The CFPB is now making consumer protection a priority.
Because the CFPB is brand new, it is currently asking the public for input into what consumer problems it ought to prioritize. Below are some key common consumer problems that OSPIRG thinks the agency ought to focus on. Learn more about the CFPB and about CFPB Director Richard Cordray.
Problem: The good news is that banks may no longer automatically enroll you in so-called “standard overdraft protection” programs without your consent. Unfortunately, many banks still try to trick consumers into signing up for this overdraft protection without fully explaining the consequences, or the alternative less-expensive products. Worse, without your knowledge, banks can change the order in which your checks and debits are cleared in order to increase the chance that you overdraft.
Solution: Require banks to be more up front with consumers about the potential negative consequences of overdraft protection; and ban check re-ordering schemes.
Learn more: Time Magazine, 1/3/12, We Paid Almost $30 Billion in Overdraft Fees in 2011.
Problem: Banks are required by a 1991 law, the Truth In Savings Act, to disclose all of their fees to anyone who asks. However, in a recent OSPIRG Foundation study conducted nationally, nearly one quarter of banks surveyed never complied with the law, even when asked several times. Only 38% easily complied; just over half eventually complied. Consumers cannot shop around if fees are hidden. Moreover, it is very difficult for consumers to make an apples-to-apples comparison of fees between different banks or to compare fees on the Internet because the law only applies to paper brochures at the bank.
Solutions: The CFPB should:
- Enforce the Truth In Saving Act: Routinely audit bank fee disclosure practices from time to time and impose penalties for banks that violate the law.
- Require banks to disclose their fees and account rules in a easy to read and consistent format (Similar protections were enacted for credit cards in 1988).
- Extend the law to the Internet.
- Require Internet fee disclosures to be available in a machine readable format so that online aggregators can automatically publish localized shopping guides for consumers.
Learn more: OSPIRG Foundation, 4/2/11, Big Banks, Bigger Fees
Problem: Private student loan companies sometimes lead some parents and students into taking out expensive private loans even while they are eligible for less expensive federal loans and grants.
Solution: Before a private lender can make a student loan, the student must have the opportunity for a consultation by her college's financial aid officer. This would help ensure that students and parents maximize all of their less-expensive federal aid before turning to private loans.
Learn more: The Institute for College Access and Success (TICAS), 12/22/11, Risky Private Student Lending on the Rise Again. See also TICAS' letter to the CFPB on private student loans.
Problem: Even if you've never missed a bill or payment, an error on your credit report – including one caused by identity theft – can mean you're denied for a loan or pay higher interest rates.
There are thousands of banks, yet just three large credit bureaus control nearly all Americans' credit reports. A recent OSPIRG Foundation study found that nearly one-quarter of credit reports had serious errors, including false delinquencies.
Credit bureaus have never been fined for these errors; and have only been fined three times at all. Once, in 2000, the FTC fined all three of them for not having enough people to answer the phones. Twice since then, the credit bureau Experian has been fined for deceiving customers into thinking that its expensive credit monitoring products are actually “free credit reports.”
Solution: The CFPB should use their authority to routinely audit the internal practices of the credit bureaus and require them to improve the accuracy of their records. In addition, the CFPB should mandate that consumers get their credit scores for free, just like federal law allows them to get their credit reports for free.
Learn more: OSPIRG Foundation, Mistakes Do Happen: A Look At Errors in Consumer Credit Reports
Problem: Credit card, student loan and mortgage contracts are mind-numbingly long and complex. It can be difficult for you to know what you are getting yourself into.
Solution: Credit and loan agreements ought to be simpler – and help you be crystal clear what you are getting yourself into.
Problem: Many consumers think that all plastic carries the same protections from fraud. Unfortunately, that is not the case.
Credit card customers have strong protections against fraud and identity theft. If your credit card is stolen, your maximum liability is $50 no matter when you discover the fraud, and you have numerous avenues to dispute billing errors. Debit cards linked to your checking account have slightly less protections; your liability is just $50 only if you report fraud within 2 days, goes up to $500 if you report within 60 days, and is unlimited if you report beyond that. All other forms of plastic, including reloadable and prepaid cards (including campus cards) have no liability limits.
Solution: Ideally, all forms of plastic money should have the same protections as credit cards. That, unfortunately, will require Congressional approval and is unlikely at the moment.
The next best thing would be to give all prepaid and reloadable cards the same protections from fraud as bank debit cards. Fortunately, the CFPB has the power to do this without Congressional approval. This would not only give prepaid card users liability protection, but would also allow those consumers to receive free balance and transaction information about their accounts in order to monitor unauthorized charges, unwanted fees and errors; have all fees clearly disclosed up front at the point of sale.
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