Is the Consumer Protection Bill Another Knee Jerk Reaction …
On July 1st President Obama sent to Congress a 152 page draft bill creating the Consumer Financial Protection Agency. According to Obama “this agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want – and actually understand.” Obama has promised that this Agency will ban “those ridiculous contracts with pages of fine print that no one can figure out.” This Agency will have “strong” powers to set rules, supervise institutions and to examine institutions and enforce such rules. This Agency will supervise financial institutions offering such products as mortgages, credit cards, and payday loans.
Is this another knee jerk reaction to a financial system that is reeling in a significant recession that has cost Americans over one-third of its net worth in the past year? The intent of this legislation targets an appealing message – monitor financial practices and products so that all consumers will better understand the “small print” and terms of the offering. I can’t help but react to an Agency whose purpose is to “simplify” financial products offered to consumers, but whose creation took 152-pages in bill form to explain its purpose. Does that strike you as odd?
We are about to embark down another road of creating an oversight agency that will require financial institutions to modify its practices by adding additional documentation in a system already overwhelmed by disclosures, documentation, statements, etc. If you have ever qualified for a home loan and signed loan documents you can attest to the bureaucratic nature of the process. Where there exists a bureaucratic impediment you add cost (i.e., banks taking over the appraisal process in place of the mortgage brokers has added cost to the system, delays and a lack of competition in the process which is raising lending costs in turn), and time into a system already diluted by fees. As far as adding time in the process – historically realtors and mortgage brokers could navigate the sale (securing the loan and closing escrow) of residential real estate in thirty days. Since the mortgage meltdown and the economic stimulus package coming to bear we have seen the best borrowers (800+ FICOs, great income, stable jobs, full doc package) take 90+ days in underwriting. This time delay costs all parties money and creates tremendous disillusionment with the process.
So what is the solution? Well the Feds hold the purse strings, why not put the burden back on the industry to figure out this mess? Throughout history Americans assume that government and its agencies are the “best industry watch-dogs” and inevitably time moves on and the pendulum swings in the other direction. When it does a host of reports begin to surface of how much waste, cost, corruption and bureaucracy has been created by the very watch-dog created to resolve the mess. This is not an efficient and time proven effective use or role for government intervention.
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Jim,
ReplyDeleteThis is not knee jerk. The industry needs to clean up, and they have PROVEN they WON'T clean up.
I've had WAY too many friends who were quoted a rate, then raised at the last minute. (Both in home and auto purchases.)
e.g. 1.9% advertised interest on auto purchases, then, they run your credit, and all of a sudden it's 22% interest rate at the point of sale.
That is PURE B.S.!
These kind of practices lack integrity, so consumers need protection.
What ever happened to "say what you mean and mean what you say?"
If a price is quoted,(Especially an ADVERTISED price), then there is no reason to change it, REGARDLESS of FICO score.
When is someone going to fix the broken FICO system, which is the money industries "Rational" for advertising one price, then switching to another price?
In other industries, this is called "Bait and Switch", and it is considered FRAUD.
It will never happen, because the lending institutions make way too much money.
The system is unforgiving, because it is less profitable to finance people without scars.
The more scars a borrower has, the more righteous the lending institutions are prepared to "sodomize" the borrowers.
The fico system is corupt, the banks use that as a false evaluation to elevate profits, so there is ZERO self interest for the banks to fix a flaw that profits in their favor.
It's too profitable to keep the dysfunctional status quo, rather than to change to ETHICS.
Intervention is REQUIRED!
That's my opinion.
Joe Nicassio
http://rapidresultsmarketing.com