How does the CFPB help consumers?
The CFPB believes that a fair, efficient and transparent market depends on the ability of consumers to effectively compare the costs, benefits and risks of financial products. It works to untangle difficult and even deceptive misinformation that could lead consumers away from making sound financial decisions.
It breaks down complex terms and conditions into plain language designed to ease the stress of shopping and signing up for personal loans, credit cards, mortgages and more. Importantly, it also issues and upholds rules that govern how creditors and lenders can market, service and process payments for mortgages, student loans, credit cards and more.
Mortgages
The CFPB helps potential borrowers narrow down the best mortgage options for their situation and know what to expect at closing. Specifically, the CFPB requires mortgage providers to:
- Send clear monthly statements that details how they’re crediting mortgage payments.
- Credit your payments the day they’re received.
- Provide advance notice if your adjustable rate mortgage is going to change.
- Avoid initiating foreclosure until payments are more than 120 days late, allowing you enough time to apply for loan modification.
Designed with feedback from consumers, its Know Before You Owe mortgage disclosure rule replaces four disclosure forms with two new ones: the Loan Estimate and the Closing Disclosure. And to help you navigate the mortgage process, it provides tools like sample loan estimates and disclosures, a guide to owning a home and a home loan toolkit.
What is the “ability to repay” rule?
Under this rule, mortgage lenders are required to make reasonable, good-faith determinations of a consumer’s ability to repay any consumer credit transaction secured by property, while also limiting prepayment penalties. It’s a CFPB amendment to the Truth in Lending Act’s Regulation Z.
Student loans
As the costs of attending college or university soar, some 44 million students rely on loans to pay for tuition, books and other necessities of student life. The CFPB provides tools to help students demystify the costs, risks and benefits of student loans. The Know Before You Owe student loans project launched as a simple financial aid shopping sheet that colleges and universities could use to help students understand the grants and loans they qualify for, but it’s since evolved to a more refined guide used at more than 2,000 schools.
The CFPB also mediates student loan complaints through its free, confidential CFPB Student Loan Ombudsman, reviewing and resolving complaints through a fair, impartial process.
Credit cards
The CFPB passed the Credit Card Accountability Responsibility and Disclosure Act in 2009, ushering in important consumer protections that include interest rate stability, lower fees and clearer payment terms. Among its guidelines, the federal CARD Act requires credit card providers to:
- Notify you before they raise your interest rates — and only under specific circumstances, such as after a late or returned payment.
- Provide intro APRs for at least six months.
- Give you at least 21 days after your statement is posted to pay your bill.
- Limit your first late payment, returned payment or overlimit penalty to $25.
To help the millions of Americans that use credit cards better understand their contracts, the CFPB also developed a shorter, simpler credit card agreement that clearly breaks down complex terms for the consumer. Clickable sections include definitions, interest rates and fees, how interest in calculated and credit card factors that can change over the life of a contract. And it collects current credit card agreements into a database you can search by issuer, allowing you to know what to expect before you apply.
Short-term loans
When you need money quickly, a payday loan can be an option to get over your financial hump. But high fees and a short repayment period can mean paying a lot of money for the convenience. To help consumers avoid the risk of falling into payday traps resulting from repeat borrowing, the CFPB proposed a contentious new rule that requires payday, auto title and balloon-payment lenders to, among other regulations:
- Conduct a “full payment test” to confirm that potential borrowers can make payments and still pay for basic living expenses.
- Limit penalty fees for loans with APRs of 36% or higher.
- Offer a 30-day cooling-off period after issuing a third short- or longer-term balloon-payment loan in quick succession.
Among its latest rules, the CFPB recently introduced a new rule to regulate arguably the most harmful part of payday loans: debt traps brought on by repeat borrowing.
