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An act is a law enacted as legislation. The Consumer Financial Protection Agency Act of 2009 was first presented to States Congress (Senate and House of Representatives) in the United States for discussion in July 8 2009. The act covers any financial product or service to be used by a consumer for personal, family, or household purposes.
According to Postner (2009), the Agency has authority over financial products and services ensuring consumers have adequate information on financial products and services so as to make rational decisions. The agency should also be responsible for designing standard products. The agency’s decree is to seek to espouse intelligibility, straightforwardness, justice, answerability, and access in the market for (consumer) financial products or services.
Its objectives according to Govtrack (n.d.) include; ensuring that all consumers especially the marginalized have access to financial services, protecting consumers from any form of exploitation and ensure equality in treatment of all consumers, ensuring easy access and use of any information that may help consumers make good decisions in regard to financial products and services, and ensuring smooth running of the financial products and services and bringing out ideas that may bring about growth and development in the markets.
Wright and Zywicki (2009) highlight the major setbacks of the Consumer Financial Protection Agency as;
- It uses high bureaucracy levels which may lead to increased expenses and wastage of time in carrying out the procedures,
- It has been seen as a major cause of financial crisis as many people result in borrowing to buy houses they could not afford and hence being unable to pay their mortgages and
- It may reduce competition and availability of credits to consumers and may also limit customer choice.
Evans and Wright (2010) observe the effects of the Consumer Financial Protection Agency to be;
Increased interest rates paid by consumers, reduced borrowing capacity of consumers hence reducing consumer spending and low rate of new jobs created in the economy.
Although the Consumer Financial Protection Agency has been viewed to have many negative aspects, here are some of the positives aspects I have realized; it ensures that the financial products are of high quality and beneficial to consumers by adhering to set standards. It allows for fair competition and outlaws prepayment penalties and protects consumers against malicious lenders.
There should be no stiff regulations on borrowers. Regulation should ensure that lenders deal with informed borrowers hence avoiding deception
Consumers should be given adequate information on changes on rates that may arise during payments of loans
There should be penalties on lenders who deceive consumers by taking advantage of their ignorance on financial products and services.
Implementation of the Consumer Financial Protection Agency Act will affect providers and consumers of financial products and services in some ways; it will lead to sweeping of consumer financial protection. The act will lead to formation of Consumer Financial Protection Agency which will ensure that other existing financial protection laws are executed in a proper manner.
It will also control consumer financial products, authorize disclosures, and necessitate businesses to offer consumers “plain vanilla” products to ascertain quality and standard and strictly enforce penalties against any malpractices. The agency will also prohibit adjustable-rate mortgages since consumers usually don’t put into consideration the possibility of future increase in interest rates and ban pre-payment penalties on mortgages.
Evans, D.S. and Wright, J.D. (2010). The Effect of the Consumer Financial Protection Agency Act of 2009 on Consumer Credit. George Mason Law & Economics Research Paper No. 09-50; Loyola Consumer Law Review, Vol. 22, No. 3, 2010, pp. 277-335.
Govtrack (n.d). Text of H.R. 3126: Consumer Financial Protection Agency Act of 2009. Retrieved from https://www.govtrack.us/congress/bills/111/hr3126/text
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Postner, A.R (2009). Treating Financial Consumers as Consenting Adults. Wall Street journal, New York: Dow Jones & Company.
Wright, J D. and Zywicki, T. J. (2009). Three Problematic Truths about the Consumer Financial Protection Agency Act of 2009. Lombard Street, Vol. 1, No. 12, September 14, 2009; George Mason Law & Economics Research Paper No. 09-48.