Squared Away Blog

October 25, 2011

CFPB Integrates Outreach, Regulation

A top official in the federal Consumer Financial Protection Bureau (CFPB) said educational outreach to four vulnerable populations – college students, seniors, members of the military, and low-income earners – will be integral to the bureau’s research, regulatory, and legal enforcement efforts.

CFPB’s consumer division will “work with regulators to make sure people know what they are signing” and to help “clean up the marketplace” by ridding it of abusive products, Gail Hillebrand, who heads the consumer division, said at a Massachusetts Financial Education Collaborative conference held Friday at the Federal Reserve Bank of Boston.

Citing the subprime mortgage crisis, Hillebrand said it began “one mortgage at a time” – in large part due to poor disclosure by salesmen or on mortgage forms.  Many borrowers who ultimately went into foreclosure failed to realize that their payments would rise sharply after the period of the initial, discounted interest rate ended.

Studies show these high-risk mortgages – more than $600 billion annually closed during the subprime boom – were disproportionately sold to working-class and minority populations.  The current regulatory requirements, with consumers signing a stack of documents at closing, did little to protect borrowers, lenders, or the U.S. financial system.

Hillebrand’s division is involved in CFPB’s current efforts to simplify the mortgage form to ensure that homebuyers fully understand such basic information as whether they are receiving a fixed- or floating-rate mortgage and whether their payments could rise.

“There has to be a way to help people make decisions without understanding all of the details” around all financial products, she said.

She also outlined CFPB’s educational and regulatory agenda for the four vulnerable groups:

College students:

• Educate students to exhaust all federal, low-cost loans before turning to higher-rate private loans;
• Examine whether students can pay off loans before they borrow;
• Explore loan programs for “non-traditional students,” such as those earning their GED;
• Ensure that young adults over age 21 who are eligible to co-sign credit cards for friends know “what co-signing means.”

Seniors:

• Educate care-giving networks to spot financial abuse;
• Create Speak Up Speak Out program to educate seniors to tell family or professionals if they’re being targeted for potential fraud by salesmen, caregivers, or others.

Veterans:

• Help veterans with mortgage balances that exceed the value of their homes refinance them without requiring that they become delinquent on their loans.

Low-income earners:

• Reverse this trend: one-third of adults who have created their first bank account leave the bank and returned to non-bank companies they previously used, such as payday lenders and check-cashing stores;
• Help change behavior and promote saving among people who have scarce resources but can benefit most from saving.