Whoever takes on the job of creating the Consumer Financial Protection Bureau will be assuming a daunting series of tasks.
The legislation requires moving hundreds of existing government employees and hiring hundreds more; getting at least 12 designated offices, units, funds and boards up and running; coordinating operations with a host of federal agencies, plus their state counterparts; updating regulations under at least 18 statutes; originating or participating in a variety of mandated studies, all due within a year or two, on top of regular reports to Congress and others, and, one hopes, doing at least some things that actually help individual consumers.
The new director no doubt will get lots of advice from many quarters. Here is mine:
First, keep it focused. In law, there's a saying that anyone can write a 25-page brief but that it takes a really skilled lawyer to write one in five pages. The same lesson applies here. One of the defects of current regulations is the so-called kitchen sink syndrome, resulting in overly complex procedures and disclosures that are incomprehensible to consumers, the people who are supposed to be protected.
I suggest that the bureau adopt the following principles:
- Any proposed regulation will be no more than three pages, preferably less.
- Any required disclosures will be on a single page no larger than 8-1/2 by 11 inches.
- Every proposed consumer protection must pass three tests: Will it be truly effective? Is it readily understandable? And is this how you would want to be treated (the Golden Rule)?
Solely by way of example, assuming the bureau wanted to address overdraft protection in all forms, here's how a regulation might read in its entirety:
1. Any advance to cover the payment of checks or other debit items because of a lack of sufficient funds — if there is any fee, interest or other penalty for making the advance — will be treated as credit for all purposes under the Federal Consumer Credit Protection Act.
2. The annual percentage rate will assume a 30-day term unless the arrangement provides a different, definitive time for repayment.
3. These services may only be provided with the prior written consent of the consumer.
It also will be important for the bureau to harmonize existing regulations. A number of us were involved in a project several years ago in which we posted the pages from all the documents given to an applicant for originating a single home mortgage.
All four walls of the room were covered with the pages from more than 120 documents. No wonder consumers and lenders alike are frustrated.
Second, an effective process should be established for hearing consumer complaints and adopting remedies. This is perhaps the key shortcoming in everything we currently have. As I wrote in an American Banker Viewpoint a year ago, we grafted preemption (a very important component of modern banking) atop deregulation and ended up with a lack of standards, no forum where consumer complaints could readily be heard and no place where remedies could quickly be fashioned and enforced. This is a main reason preemption came under attack.
One possibility might be for the bureau or others to create a nationwide network of ombudsman offices staffed by former, seasoned examiners, bankers, consumer advisers or others who can review complaints quickly and call a designated person at a bank or other service provider to resolve issues for all sides.
The result would be, the consumer gets a hearing from an independent but expert person and receives a remedy where justified and the bank maintains good will while actually reducing its costs. This approach can work even if it is voluntary since my experience is that most people accept a decision if they feel they had an opportunity to be heard and that the process was fair.
Third, it is interesting to note that much if not most of what is in the consumer portion of the new law could have been accomplished under prior law.
In the end, providing real consumer protection turns on having competent managers and staff that stay focused on what counts.
The goal for the new bureau should be that, three years from now, consumers, bankers, policymakers and others all say: "Wow, this is much better," and are supported by empirical evidence that each action by the bureau actually made a significant, measurable and cost-effective improvement. But that would take the kind of skill and tough decision-making prowess needed to write the five-page brief instead of the 25-page version.