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The Consumer Financial Protection Bureau: What It Means For You
With the creation of the Consumer Financial Protection Bureau consumers now have more safeguards in place to lend transparency to their transactions with banks and investment companies.

The recent financial meltdown revealed problems within the financial system, especially for consumers, which is why Congress passed new legislation intended to safeguard financial transactions and stabilize the entire industry.

The Frank-Dodd Act creates an entirely new federal agency, the Consumer Financial Protection Bureau, which is designed to protect consumers from shady or fraudulent transactions and will oversee all financial companies, including banks, credit unions and private mortgage firms that do business with the public. The act will create or improve rules to govern all consumer transactions, including loans, home mortgages and credit cards and be responsible for enforcing those rules.

Transparency from Banking Institutions and Consumers

As part of the Act, banks must now ask permission to charge overdraft fees on debit cards. Consumers previously complained they were unaware that they had little money in their accounts, yet were charged fees as high as $35 to approve small purchases. The new rules allow consumers to decline overdraft protection. Consumers must also provide concrete documentation proving their creditworthiness and financial viability when applying for a loan, particularly a mortgage. The meltdown that almost brought the nation to its knees was caused, in part, by a wild wave of lending to people far in excess of their ability to repay the loans.

Transparency for Investment Companies

Companies that offer various financial products are also regulated by the act and must comply with new rules that disclose any inherent dangers or risk with an investment, from securities to derivatives. The costs of the investment will be clearly spelled out so consumers aren’t surprised by transaction and fund management fees.  Companies will also be required to meet minimum capital requirements to begin or remain in business, and shareholders will now determine executive bonuses based on long-term, rather than short-term, performance.

Headed by recently appointed former Harvard Law professor Elizabeth Warren, the agency will provide more information to consumers, arming them with what they need to know to manage their finances, and providing remedies for those entangled in questionable transactions.

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