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Financial watchdog now alert for credit card complaints

by Peter Andrew

Today, the Consumer Financial Protection Bureau (CFPB) comes fully into existence. And already it is inviting you to file your complaints about credit cards and credit card companies on its website. Let's hope it isn't swamped. But even if it isn't, many are fighting to make sure the regulator won't be as effective as was originally envisioned.

Credit card complaints

The "File a credit card complaint" section of the CFPB's website looks fairly straightforward and user-friendly. It's broken down into five stages:

  1. What happened?
  2. Desired resolution
  3. My information
  4. Credit card information
  5. Review

And the bureau promises: "We'll forward your issue to your credit card company, give you a tracking number, and keep you updated on the status of your complaint." It remains to be seen how much more useful this process is going to be than simply complaining to credit card companies directly. However, if enough complaints about a particular card issuer or problem are received, that could presumably trigger a wider CFPB investigation.

Credit card regulation becomes proactive

Up until now, credit card regulation (and that for other financial products) has always been conducted by agencies, notably the Federal Reserve, that seem to regard their principal duty as being toward banks and businesses rather than consumers. The CFPB was designed to mirror that priority, placing greater emphasis on the needs of individual citizens, many of whom may be disadvantaged by the small print in standard-form contracts that are written by bank lawyers.

Of course, in an ideal world, the interests of consumers and credit card companies would converge. In theory, competition should drive out bad players in the supply end of the market, leaving credit card terms that balance the needs of both parties. However, in the real world the market is far from pure. It costs a huge amount to start a new card issuing business, and this often-insurmountable barrier to entry has left what some may regard as an oligopoly that has little incentive to moderate price gouging and "gotcha" clauses.

Two views of credit card regulation

The Credit CARD Act of 2009 intervened in the market to stop issuers' worst excesses, and there's little doubt that credit card terms are more reasonable now than they were before that legislation. However, government intervention in free enterprise often has unintended consequences, and many believe that the CFPB is a step too far in rebalancing the relationship between issuers and consumers.

That (along, possibly, with the substantial campaign contributions sometimes made by the banking lobby) is why a numerically significant group in Congress is demanding reforms to the CFPB's structure in exchange for approving the President's nomination for the bureau's directorship, Richard Cordray, a former attorney general of Ohio and a famously energetic consumer advocate.

Cordray: brave campaigner or crazy zealot?

If you believe Faiz Shakir in today's Washington Post, Cordray is a paragon:

President Obama has chosen an articulate, dedicated professional whose well-regarded record has earned him the opportunity to serve the American people. As Ohio's attorney general, Cordray cracked down on big, mortgage-lending banks for constructing what he described as a "business model built on fraud." He fought the practice of predatory payday loans and prosecuted unlicensed lenders. A former "Jeopardy" champion, he's smart, savvy and genial.

However, Collections & Credit Risk, a trade journal for debt collectors, yesterday reported a rather different view:

Cordray, now the director of enforcement for the new bureau, was immediately painted by industry insiders as a strong consumer crusader. While critics had viewed [Professor Elizabeth] Warren--the architect of the bureau--as a zealot, observers said privately they would take her over Cordray.

So assuming Cordray is confirmed, is his CFPB going to be a just and powerful regulator, or an interfering meddler who ends up short-changing both credit card companies and their customers? That's for you--and time--to decide.

Published 07/21/11 (Modified 11/18/13)


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