by Jeff Sovern
The American Banker has an interesting article titled CFPB Focuses on Consumer Choice – or Lack Thereof which discusses the speech Director Cordray gave to the Consumer Advisory Board last month (Allison blogged about it here). Excerpt from the article follow:
[Cordray said] added, "When people cannot vote with their feet, their clout is limited, even though these products and services can have a profound influence on their lives."
"Without consumer choice, a key element of market discipline is lacking," Cordray said in the Feb. 20 speech. "The result is to permit or even facilitate a distinct indifference to the interests of individual consumers."
And what does the Bureau do with that fact? Here's more:
Cordray's speech last month to the bureau's Consumer Advisory Board goes farther than earlier regulatory edicts. The remarks suggest that the relationship between a bank and a debt collector may be fundamentally unfair to the consumer, no matter how much due diligence the bank does on the debt collection firm.
"When a consumer does not pay back a debt, the creditor may decide to sell it to or contract with a debt collector to secure payment of what is still owed," Cordray noted.
"Once this occurs, the paying business relationship has shifted; it now lies between the debt collector and the creditor, not the consumer and the creditor. This can lead to mistreatment of the consumer, who becomes, in effect, a kind of 'bystander' to the new business relationship. In this situation, creditors may have little reason to ensure that debt collectors treat consumers fairly and appropriately or that they maintain and use accurate information."
Cordray also listed mortgage servicing, student loan servicing, and credit reporting as examples of industries where the interests of consumers can become largely incidental.
"From the perspective of the credit reporting firm and its clients," he said, "inaccurate reports may be no more than a statistic or an error rate. But for individual consumers whose reports are incorrect, the damage done to their lives can be severe and lasting."
So, to repeat, where does the Bureau go with this? Toward increased regulation of the entites that don't contract with consumers? In that case, why mention the banks? Or to holding banks responsible? We will see.