Consumer Financial Protection Bureau Aims to Protect Against Deceptive Practices

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The CFPB has also established an Office of Military Affairs, led by Holly Petraeus, wife of General David Petraeus, formerly head of our forces in Iraq and Afghanistan, and now head of the CIA. This office aims to provide protection and support for military families from the payday and other predatory lenders that Ms. Petraeus observes often set up shop right outside of military bases.

Military families, particularly when a member of that family is deployed, are particularly susceptible to illegal financial practices, including predatory mortgages. The CFPB has announced it will partner with the Judge Advocate General's (JAG) of all five military branches to identify and prosecute financial scams targeted at military families. Or, Making the System Worse

Conservative activists tend to agree with consumer advocates on at least one thing: Few consumers have ever heard of the Consumer Financial Protection Bureau. "I agree, I don't think most people know about it," says David John of the Heritage Foundation. Unlike Democrats and consumer advocates, many Republican leaders and banking industry representatives believe the bureau's effects on typical consumers will be mostly harmful.

Despite Democratic assurances that the bureau already has significant checks on its powers, "this agency that will have unprecedented reach and control over individual consumer decisions—but an unprecedented lack of oversight and accountability," Senate Minority Leader Mitch McConnell (R-KY) said in a statement emailed to Credit.com.

Pay More, Get Less

The main effect that the Consumer Financial Protection Bureau will have on regular consumers will be to make it more difficult, and sometimes impossible, to find the financial products they need, John says. It's almost axiomatic. Regulations cost companies money, and companies pass those costs on to consumers. That means the average cost for loans in the form of interest rates and fees will go up.

"There's an extra regulatory burden that somebody has to pay, and it's certainly not going to be the companies" paying, John says.

Some products will become so expensive and so over-regulated, that financial companies may abandon them altogether.

"Fewer products available at higher cost" will be the bureau's legacy, John says. "And that doesn't really improve the life of the consumer."

The Hidden Costs of Higher Costs

Increasing the cost of compliance with various regulatory bodies does more than endanger certain financial products, some argue. Smaller financial institutions don't have the economies of scale to deal with the tidal wave of new regulations coming their way, says Fred R. Becker Jr., president and CEO of the National Association of Federal Credit Unions.

Credit unions may be forced to raise the fees they charge their own members. Small banks may have to close branches in order to hire additional staff to handle all the regulatory filings.

Gradually, the small banking institutions that provide the financial bedrock of many American communities could be eroded.

"Definitely, some small credit unions and community banks could be forced to close," Becker says.

Big Job, Little Bitty Profile

Whether it helps or hurts the individual consumer, both sides agree that the new Consumer Financial Protection Bureau has the opportunity to change the financial landscape for regular people. It may protect them from abuse, as consumer advocates believe, or it may limit their credit choices and hurt the financial institutions closest to home.

Either way, the bureau is one of those obscure pieces of Washington, D.C. culture that probably should be a little less obscure.

"Yes, I think it will affect the major climate of consumer protection in the financial industry," Arterton says. "Whether or not this will be recognized by large segments of the American public, I think people have to be more skeptical of that."

This article originally appeared on Credit.com.

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