Consumer watchdog: Following law not enough

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Richard Cordray, the first director for the Consumer Protection Financial Bureau, talks about what consumers can expect on payday loans, student loans and other financial products. | AP photo

Updated: February 23, 2012 8:12AM

WASHINGTON — A company’s obligations don’t stop with the law. It also needs to be fair and upfront with customers.

That’s the message from Richard Cordray, who was named by President Barack Obama as the first director of the Consumer Financial Protection Bureau.

“Frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal,” Cordray said in an interview with The Associated Press. Such practices now will be a target for the CFPB.

Here’s what Cordray has to say about how the agency will impact consumers:

Q: Are there practices that are technically legal yet require regulatory action?

A: If something is technically legal, that’s one issue. But we also have the authority to determine that practices are unfair, deceptive and abusive. That’s where our authority can be used to try to protect consumers, even though maybe the technicalities of pre-existing laws have been followed.

So that’s something we’re going to have to be careful about — the use of that authority. But it certainly is necessary to protect consumers and frankly there’s a lot of fraud that’s committed in the marketplace that is not on its face necessarily technically illegal. But when you see how a product is marketed, you can see what the effect is on consumers.

Q: So in those situations, what is the most important thing consumers need to know about what the CFPB can and cannot do?

A: Consumers should know that when they feel they’re being treated unfairly, they have the opportunity to come and tell us about it. And I mean the 300 million consumers all across this country — they can come to our website at consumerfinance.gov. If it’s a mortgage or credit card issue, they can file a complaint with us.

If it’s any other kind of issue, we will be able to take those complaints eventually.

Q: Once those complaints are in hand, what are the limits of what the CFPB can do?

A: We have three different sets of authority that Congress gave us and that we are by law responsible to carry out. We have rule making authority. And we particularly are going to be active in trying to correct some of the problems in the mortgage markets over the next year or two.

We have supervision and examination authority, which is new but very important. It’s the ability to actually go into these institutions, look at their books and records and ask questions about what they do, and really get to the bottom of things. This means both working with them where that’s possible and or bringing enforcement actions where that’s necessary.

And the third is the ability to actually enforce the law — which is clearly needed if you’re going to have a marketplace that actually works.

Q: Suze Orman has a prepaid card and Amex last year rolled out a prepaid card. Do you see any risks with celebrities and major banks backing prepaid cards, or are there upsides?

A: We generally think consumers need to take care when they’re attracted to a product for reasons that might obscure the actual price and risk involved. People will want to think carefully about what they’re getting into here.

In the prepaid space in particular, there’s a lot of evolution and there are a lot of new products coming out. Some have appeared to be terrible products and some may be pretty good. We’re monitoring that and as I say, it’s a fast-moving market right now and we’re going to consider carefully how to address those issues as they arise

Q: Student loans were a big issue during the Occupy protests and graduates are burdened with more and more debt. Do you see any parallels to the mortgage industry?

A: I’ve read a lot that suggests that student loans may be a bubble that is developing. Obviously the major driver of the total amount of student loans is the rapid increases in tuition and the costs of higher education in the last 10 years. We don’t control that.

What we can control and what we can affect is the choices that consumers make. That they know what their choices are, that they know the difference between federal loans and private student loans — how that can affect terms of repayment, how that can affect the price and interest rate. These are important things for consumers to know.

We’re working right now with the Department of Education on an easy to navigate shopping sheet for students and their families.