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Now that we have a director for the Consumer Financial Protection Bureau (CFPB), the opportunity for real banking reform has significantly improved.

Here is a bold change that would do great service to consumers, financial institutions and the economy - have standard agreements written by CFPB for consumer financial products - savings and checking accounts, credit cards, debit cards, auto loans, mortgages, broker accounts,  etc.. Have these agreements be the required agreements as a condition of Federal insurance programs at banks, credit unions, savings and loans, brokerage firms, etc..

At the top of these agreements would be a table of interest rates and fees, and notes if optional terms were included that the financial institution would set (subject to other laws and regulations).  In this way, banks can compete on price, breath of products and service but not rely upon surprises in the terms of their agreements, or requiring extremely unfair terms knowing that essentially no customer will ever read the agreement.

This approach would have major impacts on consumers, financial institutions, and the economy:

  • Consumers could more readily compare what different financial institutions offer.  While rates and fees may be different, they would all be operating under the same general agreements.  This will make for a far more competitive marketplace for consumers.
  • Third parties such as Consumer Reports, bloggers, etc., could more readily provide advice on various financial products.
  • Terms that are dangerous to consumers, financial institutions and the economy can be more readily avoided.  For example, no documentation mortgages would not be permitted.
  • Auditing financial institutions and risk management becomes easier.
  • The terms of these agreements should be fair and practical to consumers, financial institutions and to the government insurance programs of FDIC, National Credit Union Administration (NCUA - "FDIC" for credit unions), SIPC, etc..
  • The terms of these agreements will be very well understood as the same agreements will be litigated many times.

As some sophisticated consumers may need terms beyond what these standard agreements provide for a provision for exceptions is needed.  Agreements between consumers and financial institutions that are not based on these standard agreements should only be allowed upon the consumer passing a sound financial licensing exam, establishing that the consumer has the necessary sophistication to understand and evaluate a non-standard agreement.


Should Financial institutions be required to use CFPB standard agreements?

9%1 votes
54%6 votes
18%2 votes
18%2 votes
0%0 votes

| 11 votes | Vote | Results

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Comment Preferences

  •  Tip Jar (3+ / 0-)

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Fri Jan 06, 2012 at 12:02:22 PM PST

  •  Um no offense but I posted about this already (0+ / 0-)

    it's been on the rec list all day.

  •  A bit tame, actually (0+ / 0-)

    What's worrisome about any call like this is that it is easily hijacked by those people. You know, Herman "no law longer than a postcard" Cain't and Rick "Laws is confusing" Perry? They would like to simplify as well, but when they simplify, it is to eliminate protections.

    In other words, sometimes terminology gets obscure because of the legal protections for consumers (1972 contracts were like that) and sometimes because of multiple protections for the company's profits (today's contracts). What we're upset with is not necessarily the number of qualifications, nor even, probably, the terminology, but, as you point out, the changing terminology and the synonyms used with difference.

    A standard contract is alright, but more useful might be a right of appeal to any obscure language, or an arbiter who isn't for profit.

    Every reductio ad absurdum will seem like a good idea to some fool or another.

    by The Geogre on Fri Jan 06, 2012 at 12:28:34 PM PST

    •  Whether it is tame or not depends upon (0+ / 0-)

      what agreements the CFPB writes.

      As far as obscure language is concerned this is strictly a matter of what the CFPB writes as well as back-up documents they may write to describe what the language means.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Fri Jan 06, 2012 at 12:54:14 PM PST

      [ Parent ]

      •  I wasn't quarreling (0+ / 0-)

        I was pointing out that our underlying impulse of seeking clear language can be hijacked. As far back as 1738, we have the ideal of laws that are no longer than a single sentence.

        What we need is a mechanism for ensuring comprehension, and comprehension is what con-men want to evade and honest men seek. That's why we need either an evaluation by CFB or a set of terms in common or arbitration that sets up precedent that is openly accessible to the public.

        Every reductio ad absurdum will seem like a good idea to some fool or another.

        by The Geogre on Fri Jan 06, 2012 at 04:44:39 PM PST

        [ Parent ]

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