How the New Consumer Bureau Will Help You
Kimberly Palmer

Big changes are on the way for mortgages, personal loans, and other financial products

The new consumer financial protection bureau, which was created this summer by the bank reform bill, aims to make complex financial products easier to understand. The bureau will serve as a watchdog over credit cards, mortgages, payday loans, and other products. One goal is to avoid another subprime mortgage meltdown, which economists partially blame on people signing up for mortgages that they couldn't afford and didn't understand.

So what does this newly created bureau mean for you? Here's what you need to know:

What will this new bureau do?

It's charged with creating new rules to put an end to "abusive" financial products. The bureau, which is funded by the Federal Reserve, also has the power to enforce those rules and to improve data collection about the use of financial products, including mortgages and pricing information. The bureau has the power to ban unfair or deceptive practices, create new regulations, and enforce consumer protection laws. Likely targets include complicated mortgages, pricey loans (such as payday loans), the credit scoring system, and debt-related financial services.

How is this agency different from the consumer protection bureaus that already exist?

This is the only consumer protection bureau to focus exclusively on financial products. The Federal Trade Commission also targets "unfair and deceptive acts or practices," but its primary mandate is to ensure a competitive marketplace. The Food and Drug Administration's Center for Food Safety and Applied Nutrition oversees the country's food supply, cosmetics, drugs, and medical devices. The Consumer Product Safety Commission is charged with protecting people from unsafe products, such as children's cribs or household chemicals.

Will the bureau place greater restrictions on lenders and, ultimately, reduce the amount of credit available to people?

Critics of the bill have argued that the bureau is more unnecessary government bureaucracy, and that consumers are capable of making smart decisions without hand-holding from the government. Prior to the bill's passage, business groups lobbied Congress to delay approval for the new agency, arguing that it could be overly restrictive and costly. The bill's supporters argue that the subprime mortgage meltdown demonstrates the need for such oversight and that it will help ensure a fair and competitive marketplace in which consumers make informed decisions.

Who will lead it?

The bank reform bill gave the president the authority to appoint the director of the bureau (subject to Senate confirmation) to a five-year term. While President Obama has yet to name his choice, he is widely expected to select Elizabeth Warren, a Harvard law professor who has headed the Congressional Oversight Panel, which was created in 2008 to oversee the Treasury Department's efforts to stabilize the economy.

If Elizabeth Warren serves as head of the bureau, what can we expect?

Warren has a long history of standing up for consumers, especially middle-class workers struggling to get ahead. Before working for Congress, Warren was best known for her book, The Two-Income Trap: Why Middle-Class Parents are Going Broke, and for being a law professor at Harvard Law School. She doesn't shrink from controversy: Last year, her Congressional oversight panel criticized the Treasury Department for not doing more to help struggling families and has called for greater transparency in the use of the bailout funds.

In an interview with U.S. News in February 2009, she emphasized the importance of supporting middle-class families: "The financial system can't be stabilized without stabilizing families. If families continue to choke on debt they cannot pay, the whole system will continue to falter. ... The outcome of this recession will either be a significantly strengthened middle class -- which has less debt and a stronger safety net, both on its own and through new government regulation -- or the middle class we once knew will disappear. [In that case,] America will move to a two-class economy -- a substantial upper class that's financially secure and then a very large underclass that lives paycheck to paycheck."

Government policy, says Warren, is what will determine which of those two outcomes we'll see. Soon, she might be in a position to directly determine that policy.

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