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CFPA Mythbuster

Myth #1: Effective oversight will stifle innovation in the financial services industry.

Fact: The Consumer Financial Protection Agency will increase innovation in the financial services industry by applying one set of rules to all financial services providers.

• Deceptive and toxic product features will be restricted. This will make room for truly innovative financial products.

• Lenders who provide a good product won’t have to compete against those who use deceptive fine print to make their loans look better, or cheaper, than they really are.


Myth #2: The existing federal banking agencies can protect consumers.

Fact: The current agencies failed to protect consumers and the U.S. economy in the mortgage meltdown. Six or more federal agencies regulate different providers of consumer financial services. No wonder the system hasn’t worked.

• Not one of the current financial regulatory agencies is charged with identifying emerging harms or preventing harm to consumers as its primary job.

• Not one of the current agencies can develop and enforce a rule against unfair or abusive practices that applies to all lenders.

• Under the current system, rules are applied unevenly and banks can even choose their regulator by changing their form or charter.

• The current banking agencies’ primary job is to protect the banking system, with consumer protection coming in second place or lower on their priority lists.


Myth #3: Having one agency could be dangerous if that agency doesn’t do its job.

Fact: Putting the job of consumer protection in financial services in one place will make the agency accountable – and state consumer protection authority will be an important additional safeguard.

• Because the CFPA will have the whole job of consumer protection in financial services (outside of SEC activity and insurance), it will be clear whose fault it is if something goes wrong.

• The CFPA regulations will serve as a federal floor for consumer protection rather than a ceiling. States will have the power to create stronger consumer protection laws and enforce them. States will be able to step in when problems are small, before they create problems for our national economy. Instead of a race to the bottom, there will be a race to the top.


Myth #4: Regulation costs money, so consumers will pay more.

Fact: Consumers pay a high price when there is not enough regulation of financial products, in hidden fees, higher than expected interest rates, and loans that are too hard to repay. It was the lack of effective, responsive regulation to protect consumers that allowed banks and other lenders to make mortgages that pumped up housing prices to levels that couldn’t be sustained. That lack of consumer protection in the past is one reason it is taking so long for the economy to recover. We are all paying now for the lack of consumer protection in loans during the boom years.


Myth #5: Banks will be harmed if consumer protection is separated from the regulators whose job is to keep the banks solvent.

Fact: The Consumer Financial Protection Agency won’t have the power to tell any bank or lender that it has to make a loan to any individual at any specific rate. Instead, the CFPA will be able to restrict the fine print and product features that can make a loan or bank account so much more expensive than expected, address deceptive sales practices and false promises, and make sure that the financial services marketplace operates fairly.


Myth #6: States should be deprived of the power to protect their consumers.

Fact: States can respond to the needs of their residents more quickly than the federal government.

• The federal rules will set a minimum set of rules that always apply.

• Because the bill will restore state consumer protection authority, problems which start in one region could be stamped out by the states before they spread nationwide.

• States have been active in pursing predatory lending in spite harmful and outdated strict federal limits on their ability to protect their own residents.

• State Attorney General enforcement means more “cops on the beat” to stop lies, tricks, and bad practices.


For more information, please contact:

Pamela Banks
Policy Counsel
Consumers Union of U.S.,

Gail Hillebrand
Financial Services Campaign Manager
Inc. Consumers Union of U.S., Inc.

Please visit: http://www.consumersunion.org/topic/bailout/.