WASHINGTON — A company’s obligations don’t stop with the law. It also needs to be fair and upfront with customers.
That’s the message from Richard Cordray, who was named by President Barack Obama as the first director of the Consumer Financial Protection Bureau.
“Frankly, there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal,” Cordray said in an interview with The Associated Press. Such practices will now be a target for the CFPB.
The CFPB is moving quickly to flex its full authority in policing businesses such as mortgage brokers, student lenders and other businesses that previously escaped federal scrutiny.
The CFPB has started collecting public comment to help simplify the disclosures consumers receive with credit cards, mortgages and student financial aid. It will take months or even years before consumers see how these efforts play out.
But here’s what Cordray had to say about how the agency will impact consumers:
Q: A major focus for the CFPB has been on improving the transparency of a product’s fees and terms, and the disclosures consumers receive. Are there instances where this won’t be enough and more aggressive regulatory action will be required?
A: Let me answer that question in two parts. On transparency and disclosure: a key insight here is that more disclosures don’t always make things better. As it accumulates, there can be so much dense fine print that it can actually make things much worse — consumers find it hard to penetrate and they often will not read it. That’s a concern and that’s why we’re trying to make things more transparent, simpler and clearer with our “Know Before You Owe” project. However, simply making things clearer to consumers is not enough if people aren’t actually playing by the rules and defrauding consumers. There we have to enforce the rules and we have to do it fairly, even-handedly, but with rigor so that everybody understands that they have to follow and respect the law.
Q: Are there practices that are technically legal yet require regulatory action?
A:If something is technically legal, that’s one issue. But we also have the authority to determine that practices are unfair, deceptive and abusive. That’s where our authority can be used to try to protect consumers, even though maybe the technicalities of pre-existing laws have been followed. So that’s something we’re going to have to be careful about — the use of that authority. But it certainly is necessary to protect consumers, and frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal. But when you see how a product is marketed, you can see what the effect is on consumers.
Q: So in those situations, what is the most important thing consumers need to know about what the CFPB can and cannot do?
A: Consumers should know that when they feel they’re being treated unfairly, they have the opportunity to come and tell us about it. And I mean the 300 million consumers all across this country — they can come to our website at . If it’s a mortgage or credit card issue, they can file a complaint with us. If it’s any other kind of issue, we will be able to take those complaints eventually.
Q: Suze Orman has a prepaid card and Amex last year rolled out a prepaid card. Do you see any risks with celebrities and major banks backing prepaid cards, or are there upsides?
A: We generally think consumers need to take care when they’re attracted to a product for reasons that might obscure the actual price and risk involved. People want think carefully about what they’re getting into here. In the prepaid space in particular, there’s a lot of evolution and there are a lot of new products coming out. Some have appeared to be terrible products and some may be pretty good. We’re monitoring that and as I say, it’s a fast-moving market right now and we’re going to consider carefully how to address those issues as they arise.
