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Lessons we’ve learned

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Yesterday, Raj Date spoke in Philadelphia about the lessons of the 2008 financial crisis for the consumer bureau. Before taking questions from the audience, Mr. Date, Special Advisor to the Secretary of the Treasury, outlined three basic themes for our work.

Number one: People should be able to know before they owe. More paperwork doesn’t mean better disclosure.

Number two: Common-sense rules of the road can prevent bad practices from harming consumers.

Number three: The rules of the road should apply to everyone – and they should be consistently monitored and enforced.

Watch his full speech below, or read his full prepared remarks. If you have any thoughts, we encourage you to leave them in comments below.

Update: After his remarks, Mr. Date also took audience questions about the CFPB in a panel moderated by Jeff Gelles of The Philadelphia Inquirer.

  • VanbytheRiver

    Mr. Date alluded to what is an ever-increasing void between the complexity of mortgage loan transactions and the ability and/or willingness of consumers to understand the details of the transaction. Many if not most consumers fill that void with “advice” from lenders and brokers, and their loan officers. Until recently these “advisors” were generally paid based on factors that were not in the consumer’s best interest, such as charging higher interest rates and/or higher fees. The recent TILA originator compensation rule has removed much of that negative incentive.
     
    However, there is still a large information disconnect between the relevant details of a mortgage loan transaction and the consumer’s willingness or ability to understand and make an informed choice. The recent RESPA changes (1/1/2010) and TILA changes (other than the originator compensation and anti-steering rule, which are far from perfect but on the right track) along with a plethora of nearly meaningless additional state and federal disclosures have done nothing to clarify the consumer’s understanding and from my prospective, with over 30 years experience in the industry, have served to further confuse and frustrate the consumer.
     
    In order to best assist the consumer in understanding their transaction the TILA and RESPA disclosures should be kept separate, and rolled back to the previous form and format with some relatively minor adjustments to increase clarity, including a very clear warning for the consumer to continue to ask questions and get expert advice if they do not understand any element of the transaction.
     
    The most relevant issue raised by Mr. Date is the need for enforcement. Penalties for any violations of applicable laws, regulations, and standards of practice should be vigorously applied in a consistent manner in order to effectively serve as a negative reinforcement for bad behavior. Enforcement must not depend on the relative size or scope of the violation or the size of the business entity involved. In short, I believe that lack of consistent and meaningful enforcement has been one of the main problems that helped to trigger the recent mortgage and housing meltdown. With effective enforcement we will very likely find that we need fewer new laws and regulations. Issuing new laws and regulations make it sound like legislators and regulators are “taking action” when in fact existing and new laws and regulations are not meaningful without vigorous enforcement.
     
    Finally, funding is critical for effective enforcement. Revenue now being wasted on complicated new, revised or updated disclosures and other potential rulemakings while meaningful enforcement of current rules languishes. If necessary, additional enforcement funds should be obtained from the industry participants by means of increased licensing, registration, surcharges or similar fees, and significant monetary penalties for wrongdoers. However, regulators should not consistently target the big players simply because they have deep pockets and are easy targets. Enforcement should be an “equal opportunity” effort to weed out the bad and/or ignorant players at all industry levels.

    • Ryan

      Perhaps that is why a single form for mortgages is what the aim is.  That way, if it’s not the right form, consumers know something isn’t right.  It also keeps lenders from hiding details in the fine print on the 147th page whilst glaring at the borrower for not just signing (I know this isn’t every lender – but it happens).

      I’m excited for simplicity and clarity.  I think 1 form that everyone can become familiar with is the best and easiest solution.

  • MomandPop

    Thanks for the great work in providing better protections from predatory lending and misleading information from advisers and those who are suppose to be assisting customers in their business transactions. Can you please also provide better protections for retirement accounts which are being targeted by unscrupulous financial advisers and are susceptible to misappropriation and outright theft?

  • Ronald L. Greene

    It is too late to help this nation. No one can solve human problems that are spiritual without obeying God. “Man (that’s all of us) shall not live on bread alone, but “BY EVERY WORD OF GOD.” Our currency there is the bold statement, “IN GOD WE TRUST,” yet no one inspires reading every word of the Bible, no, not even ALL CHURCHES OF ALL RELIGIONS. This nation rejects the Word of God and the Word of God states that this practice incurs STIFF PENALTIES. 

    This nation and others around the world was established by God, BUT ALL NATIONS REJECT GOD’S RULE OVER THEM. 

    Revelation 12:9: “SATAN IS DECEIVING THE WHOLE WORLD,” so it can never come out from the deception of Satan until it begins to    read and understand Leviticus 11 and 23, but the most important is John 1. Jesus predicted a false religion, a false Christ, false teachers of the Word, and false Apostles would lead the whole world into the GREAT TRIBULATION: A TIME OF TROUBLE THAT HAS NOT BEEN SINCE THE HISTORY OF THE WORLD AND THAT IF THESE DAYS ARE NOT LIMITED NO FLESH WILL BE SAVED ALIVE, EXCEPT FOR THOSE WHO HAVE REPENTED, HAVE BEEN BAPTIZED AND HAVE RECEIVED GOD’S HOLY SPIRIT AND CONTINUE TO GROW IN GRACE AND KNOWLEDGE OF GOD. THE TRUE GOD THE FATHER AND JESUS CHRIST, HIS SON.

    Everyone reads books from beginning to end and become quite successful. BUT NO ONE READS THE BIBLE FROM GENESIS TO REVELATION AND DO WHAT IT SAYS. The Bible says, NOT THE HEARERS (THE READERS) OF THE BIBLE ARE JUSTIFIED, BUT THE DOERS. 

    Western civilization will fall to foreign powers BECAUSE IT HAS THE WORD OF GOD, BUT DO NOT FOLLOW IT. WE FOLLOW ALL OTHER KINDS OF INSTRUCTIONS TO THE LETTER AND THINGS WORK PERFECTLY. WE NEED TO DO THE SAME THING WITH THE BIBLE. “LIVE BY EVERY WORD, SAYS JESUS CHRIST WHO IS LORD AND KING AND MASTER. 

    IF WE DON’T OBEY GOD THEN SATAN BECOMES OUR LORD AND MASTER AND SATAN HATES ALL MANKIND AND IS PLANNING TO DESTROY US ALL. 

    JESUS DECLARES THAT HE WILL RETURN JUST IN TIME BEFORE ALL LIFE IS ERASED FROM THE PLANET. WE CAN PREVENT THAT IF WE WOULD SUCCEED FROM ALL RELIGIONS AND FORM A SEPARATE PANEL TO EXPLORE THE WHOLE BIBLE. DO NOT INCLUDE ANY RELIGION OF THE WORLD WHO REALLY BELONG TO SATAN.

    I HAVE DONE THIS AND HAVE DISCOVERED THAT ALL RELIGIONS OF THE WORLD PROFESS A god, BUT THEY DON’T KNOW THE TRUE GOD. 

    DISCOVER, cbcg.org and churchathome.com TO HEAR THE TRUTH BEFORE IT IS TOO LATE. GOD IS MERCIFUL TO ALL WHO OBEY JESUS.

    “MAN SHALL NOT LIVE BY BREAD ALONE, BUT BY EVERY WORD OF GOD.” NOT SOME OF IT, BUT ALL OF IT.

    • Dr. Rational

      I think the voices in your head may not be god, take your meds.

    • PeanutGalleryResponder

      I’m rather offended by this.  Please don’t tell me who my god is, Ron.  Crazy has its place and I don’t think it’s here.

    • http://www.facebook.com/orrgroup Andrew C. Orr

      Ron, you sir are a NUTJOB.

  • Dollyspal

    Enforcement is a key issue. The average consumer,such as myself ,should not have to spend $ 25,000  in legal fees and still not get answers to errors made at settlement and  in servicing. Lenders &  servicers have much deeper pockets than the consumers  and when they are questioned by the QWR all they have to  do is stall and continue the proceeding for YEARS, thus the average consumer can loose their home and their $ 25,000. There should be a reasonable time when  intervention by the CFPB  is  guaranteed to assist consumers when the players in this equation  have unlimited funds and will use those funds to hide their errors and not be accountable to any of their customers.

  • DAVE

    Our Polititions are CORRUPT, our GOVERNMENT is CORRUPT and untill we get MONEY OUT OF THE POLITICAL PROCESS OUR COUNTRY WILL CONTINUE TO GO DOWN HILL AND WE WILL MEET OUR DEMISE ! ! !
    DAVE

    • luck and a prayer

        I couldn’t agree more Dave! Politicians want money to get elected, corporations want profits through tax breaks, and de-regulation. Rupert Murdock spins the propaganda through every Fox channel he owns, so our nation begins to vote against their own best interest. Corrupt politicians are elected, and once those politicians get into office they give coporations whatever they want in return. Meanwhile, our nation continues to spiral into unemployment, union striped of their rights, and ultimantely poverty.  If you can’t see what’s happening then maybe it’s YOU who’s watching to much Fox News.

  • Jwshel56

    In response to point #1 above: “People should know, before they owe”. Absolutely correct !!!!!  This is
    why I would like to see LAWS requiring FULL DISCLOSURE of ALL underwriting criteria for EVERY credit
    product that there is. Tell us what credit score(s) we need, and which scoing model(s) they use, eg. FICO, Transrisk, Vantage, etc. . Which bureau(s) do they pull from. ALL of the disqualifying factors eg. 1 collection account on credit report is OK, 2 is disqualifying, etc, etc ALL of the secret proprietery info that is used in granting credit. And also require ALL of this info to made available to the public on the Internet so we can look it up BEFORE wasting credit report inquiries !!!!

  • Bstidham

    My observation is that CFPB is very willing to protect the consumers.  One problem that I did not hear addressed, is when a property owner finances their property, the initial lender/bank is who they develop a relationship.  Upon signing the loan documents they are made aware that the lender may sell the loan to an investor.  At the point of the loan being sold, the property owner loses out.  Who can they speak with (a decision maker) should they lose their job, illness, etc?  The servicer’s famous answer is, we must contact the investor(s)!  There is NO investor contact person that will speak directly with the borrower!  No one that can make a decision!

    • Scober13

      All lenders sell loans. It is called liquidity and a necessary function of our economy. If you lose your job and can’t pay your mortgage, you still have 6 months to get another job and catch up before you are foreclosed on. Do you expect a lender or investor to just say oh don’t worry about paying us back the money you borrowed, you can live there for free? While you are at it, collect some unemployment as well. There is and has always been a system of checks and balances that protects homeowners from being kicked out immediately when an unfortunate circumstance occurs and they can’t make their payments. That said; if 6 or 9 months go by and a borrower is still not making their payments, they have to go. That is the way it is, should be, and has to be in order for the American Dream to be obtainable for all. Do you have a better solution?

      • Anonymous

        20 yrs ago mortgages were owned and serviced locally in my part of the country, so the practice of selling mortgages is relatively new and definitely not a NECESSARY function of our economy.

        IMO the economic problems started with the requirement for Title Insurance (instead of updates to abstracts); and the selling of mortgages (sometimes without transfer of the actual loan papers); and holders of those mortgages trying to change the terms of the mortgages through scare tactics that worked on many people even though the holder couldn’t provide the paper proof of the terms; and paperwork 4″ high thrown in front of a Buyer on closing day.

  • Raymond

    One must be aware of those within our society who do not have an inkling toward morality, but for those of us that do I believe the majority would consider your three suggestions quite profound.
    It seems capitalism unchecked propagates evil deeds. I have had the opportunity to work with young soldiers and their family members on personal finance through a program mandated by Congress. The chain of command in the most areas of the Army, especially the infantry did not find this program feasible. It was too difficult to implement, although on a broader scale many our issues with the consumer deals with mismanagement of funds and financial literacy. The Consumer Financial Protection Bureau is a good start. Good luck!

  • Joseph James

    How can the OCC who is supposed to be the one agency with some jurisdiction over national banks allow Bank of America to take 8 months to respond to a complaint and not require them to do so within the alloted time frame and then accept a letter from that bank whom the complaint was filed against and close the file without any investigation of the facts. The bank says they were right and Mr. Homeowner was wrong and the case gets closed. Then when OCC is questioned they suggest you contact a lawyer. Who can the lilttle guy go to? These Senate hearings are more like the mutual admiration society. There is more time spent by both sides thanking each other for being there and giving them the opportunity to testify than there is holding the crooks accountable. Both sides couldn’t care less about the struggling homeowners. Oh Yeah! Once the file is closed the bank sends the homeowner a notice to accellerate and wants them gone ASAP (according to a former 10 year BofA employee). Are there some great folks out there or what.

  • Artmag

    Let’s stop saying “mistakes were made.” Actually, greed, arrogance, and the incestuous relationships among all political parties, corporations and their leaders. lobbyists, and government chairs of Fannie Mae and other entities made it possible for crimes to be committed. We don’t need to study or investigate further. We know who the guilty are; we are just waiting for them to be held to account.

    These “mistakes” won’t be made again if we publicize the gross unethical and immoral behaviors that caused global financial structures and economies of most nations to be put on and continue on life support.

    The journalists of our best newspapers have done the work of government regulators and investiators. Now, read their findings and the book “Reckless Endangerment: How Outsized Ambition, Greed, and Corruptiion Led to Economic Armageddon by Morgenson and Rosner. 

  • Sararosebeth

    My basic comment is that the lesson we all have to live within our means.  Lower income families cannot afford housing that is the bottom line, the fees and costs associated with upkeeping a house are too large.  School Loans on the other hand are worth every penny; in my experience the repayment of loans are workable after gruaduation.  We should not make it hard to get a college degree for anyone in this country. 

  • Anonymous

    I am so pleased the CFPB exists!  I truly hope you will be successful.

    1.  Student Loans – any organization that holds a student loan should be required to MAIL at least quarterly statements.  Our loans (my son’s) were transferred/sold, we receive NO statements. Before that, we received quarterly statements and were given the opportunity to pay the interest.   I recall getting correspondence regarding the transfer/sale, but now it is up to me to be able to find the paperwork and track the loans down, and figure out what is going on.  Makes no sense.  If there is a law requiring statements, please let me know. 

  • Anonymous

    (note I couldn’t see what I was typing)  cont’d

    2.  Credit Card terms – no the average consumer cannot decipher the
    terms and conditions.  Even the “summaries” of changes are much too
    complicated, even for college graduates that majored in accounting. 
    Further, consumers should not be penalized for closing credit card
    accounts in their credit score calculations.

    3.  Credit Score Calculations – full disclosure and impact of actions should be made available to consumers.  Requests for copies of credit reports should include the scores – THE scores that are going to be used by lending agencies.  The behind the scenes secret scoring is unacceptable.

  • Anonymous

    (note I couldn’t see what I was typing)  cont’d

    4.  Banking System/Federal Reserve – the practice of requiring 3 different types of collateral should be regulated, especially when those pieces of collateral are worth more than 1000 times the value of the small business loan.  I understand the need for collateral.  I do not understand pledging assets (business and personal) that FAR exceed the lenders risk.  If the Banking System won’t change this, then government should force them to change immediately.  Some claim that too many regulations stand in the way of small business – this is an example of when more regulations are needed, not less.  They’ve gone beyond the point of logic and reason.

  • Anonymous

    cont’d

    5.  I strongly support a standard short form mortgage loan document.  The pile of papers thrown in front of a Buyer on closing day has gone beyond reason.

    6.  Banking System and Credit Card system should be required to make full disclosure of all information surrounding disputed credit card charges, suspected fraudulent use, etc etc  upon request of the cardholder.  This “I can’t tell you that” excuse is unacceptable.  Every credit card charge posted to any account should include, and require, a verified phone # and a valid/verified tax ID.  If this was included in the latest legislative changes please let me know.

  • Valerie R Goodwin

    I would like to see various types of debt instruments (mortgages, credit cards, payday loans, etc.) provide basic disclosure facts on a uniform grid, much as food producers are required to display their nutrition information on food packaging.  This would enable shoppers to compare data between one product and the next, which at this time is nearly impossible. 

  • Concerned

     It’s good that something is being done but it sounds like “too little too late”. We won’t be in this mess if we simply did our jobs and listened to the people who tried to warn us.    Deregulation has simply opened the flood gates to letting big business  get away with murder. What ever happened to accountability?  What message are we sending to the next generation?  .

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