Research and Statistics

Consumer financial protections at least a year away


Long ramp up time for new Consumer Financial Protection Bureau means consumers will have to wait for credit card protections

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Don’t expect your credit card agreement to get easier to read or for payday lending terms to get better any time soon.

Expect year’s wait for new consumer watchdog

Michael Barr, assistant U.S. Treasury Department secretary

“Creating a new consumer financial protection bureau will take some time.”

— Michael Barr, assistant U.S. Treasury Department secretary

President Obama signed the massive Wall Street reform bill into law July 21. The new law creates a federal Bureau of Consumer Financial Protection as an independent watchdog agency that focuses solely on consumer lending and financial products, including credit cards and debit cards. However, the agency won’t be up and running for at least a year, a U.S. Treasury Department official said Thursday during a media briefing on the new law.

“Creating a new consumer financial protection bureau will take some time,” said Michael Barr, assistant U.S. Treasury secretary for financial institutions.

Implementation will take time
Why the delay? The bureau will take over consumer protection duties currently held by several existing federal agencies, including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Trade Commission and National Credit Union Administration. Workers from those agencies must be transferred to staff up the new bureau. Most importantly, President Obama must appoint a director to lead the bureau. The law says the transfers must take place between six months and 18 months of Obama signing the bill into law.

Barr said it will likely be a year before the powers and duties are transferred to the new consumer protection agency and it is up and running.

Among other things, the new consumer financial protection bureau will have authority to enforce existing consumer laws, investigate unfair, deceptive or abusive practices and write new regulations when needed.

Making credit card agreements more readable

The law specifically allows the bureau to set standards that banks and credit unions must follow in disclosing key terms for their products. The new agency can also require banks to use language that is “comprehensible to consumers” and written in easy-to-read type fonts and sizes.

A analysis of credit card agreements for all of the major U.S. credit card issuers found these contracts are written on a 12th grade reading level — three grade levels above what reading experts recommend for easy comprehension by the average American adult.

Asked about whether the new bureau would focus more on banning abusive practices or on making agreements shorter and more comprehensible, Barr said, “I do think that clear, honest disclosure and improving disclosure in a way that individuals can actually understand … is an absolutely critical goal.”

Barr called the new law, formally called the Dodd-Frank Wall Street Reform and Consumer Protection Act, the “toughest financial reforms since after the Great Depression.”

“This is a really clear victory for the American people,” Barr added.

Barr did not speculate on who may be on the short list of potential candiates for a new consumer financial protection czar. Some reports have said Barr himself may be in the running along with Harvard University law professor Elizabeth Warren.

Said Barr: “That’s a decision that’s up to the president.”

See related:U.S. credit card agreements unreadable to 4 out of 5 Americans

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