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2013 -- The Year of the Consumer

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For the Chinese, 2013 will be the year of the Snake. For Americans, it will be the year of the Consumer.

Why? There is a new sheriff in town and he carries a big stick. The sheriff's name is Richard Cordray, Director of the Consumer Financial Protection Bureau, and he is going to shake things up.

And there will be big changes to look out for, including a vigorous crackdown on abusive debt collectors; changes in the way credit reports are prepared and used; continued focus on reforming the mortgage loan market; finding a solution to a crisis in student debt financing; and a review of how banks charge overdraft fees.

Any one of these issues would in itself have a huge impact on consumer protection. All at once; they will touch every American consumer. That is truly why 2013 will be the Year of the Consumer.

The new sheriff is soft spoken and approaches enforcement in a "no-drama" manner. His first enforcement action was to order refunds and penalties of a half billion dollars to be paid by credit card companies for misleading marketing practices for their credit card protection plans. American Express, Discover, and Capital One very quietly consented to the refunds and penalties. The CFPB and the Fed is looking at how banks charge overdraft fees. Bank of America was levied a fine and refund of $410 million in response to the financial giant's practice when such fees were not warranted. In 2012, over 5.5 million customers were the beneficiaries of these refunds and restitutions.

The CFPB is also focusing on the order in which other banks process checks and other transactions, saying that it is concerned with the practice of commingling all checks, bill payments, debit card transactions, and ATM withdrawals each day and processing the largest transactions first, which maximizes the number of transactions that will trigger an overdraft fee.

Beginning next week, the CFPB will exercise new authority over about 175 of the nation's largest collection agencies. Examiners from the CFPB will carry out on-site inspections to verify that the firms are adhering to the Fair Debt Collection Practices Act. The added oversight comes after hundreds of thousands of consumers have complained of aggressive and illegal behaviors from debt collectors. In 2011, the Federal Trade Commission received 150,000 consumer grievances tied to the industry. "Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," said CFPB director Richard Cordray.

This is an incredibly big deal. Director Cordray's comments regarding debt collection agencies are nearly identical to comments he made shortly before the CFPB announced a series of settlement agreements with the banks discussed earlier in this article.

In examining debt collection agencies, the Bureau advised that it would also be assessing whether these agencies engaged in similar deceptive business practices. It seems highly unlikely that the CFPB would have made this bold pronouncement if it was not already planning enforcement actions against certain debt collectors. Logically, the prime targets would be those debt collectors most in the news for bad behavior: Encore Capital Group, Asset Acceptance Capital Corp., West Asset Management and Portfolio Recovery Associates.

Consumers should also have fewer problems getting errors fixed on their credit reports. The CFPB is taking a very hard look at credit scores. The bureau researched 200,000 credit files and found that there are lots of different credit score models, particularly when it comes to scores sold to consumers vs. scores sold to lenders.

The new sheriff has some friends that can be very helpful. Newly elected Sen. Elizabeth Warren, a self-styled "cop on the beat" will now command the "bully pulpit" from the Senate Banking Committee. Speaking at the Democratic Convention earlier in the summer, Warren said, "Wall Street CEOs -- the same ones who wrecked our economy and destroyed millions of jobs -- still strut around Congress, no shame, demanding favors, and acting like we should thank them. Anyone here have a problem with that? Well I do." She may moderate her tone now that the election is past, but her sympathies are clear.
The other big friend of the sheriff is the state attorneys general. The state AGs kicked off 2012 with the National Mortgage Settlement. Five major banks paid $26 billion in restitution for "robo-signing" (the robotic execution of false and forged paperwork) although many homeowners are still losing their homes.

The attorneys general are rumored to be coming back for another bite at that apple. This time they will likely extract even bigger fines from the major banks for "robo-signing" in the credit card world by debt collectors in a contract relationship with the banks.

2013 will indeed by the Year of the Consumer.