One of the big topics in Washington right now is whether the United States needs a Consumer Financial Protection Agency. The Administration says "yes" -- the logic being that consumers have been taken advantage of by mortgage and credit card lenders and therefore need an agency that fights just for them.
Whereas I do feel that consumers have been mistreated, I also feel our country has done a poor job educating its citizens on the most basic of financial principles. So instead of spending enormous energy and dollars creating a new federal agency (the CFPA), how about we spend 1/100 that amount providing inexpensive resources for people who are willing to invest a few hours to learn to protect themselves?
The two big areas that the new Finance Protection Agency wants to regulate are mortgages and credit cards. This stuff is not rocket science. It would not be hard to create simple resources for people to learn about mortgages and credit cards.
Instead of just shooting off my mouth, here my stab at a start.
Don't Get A Mortgage Unless You Can Answer These Questions:
1. What is the interest rate?
2. What is the monthly payment?
3. For what period of time will the interest rate remain fixed?
4. For what period of time will the monthly payment remain fixed?
5. Are there any penalties or other reasons I cannot pay off this loan whenever I want?
6. How much is my mortgage principal being reduced on a monthly basis?
7. When my monthly payment can change, how does it change?
8. What is my worst case scenario on the change in my monthly payment?
9. What happens if I am late with a monthly payment?
10. What exactly are the fees for closing this loan?
Our high schools and universities have done a poor job preparing our young adults for the real world. If the Administration and Congress feel the need to do something, how about pass some laws requiring basic financial education in our school systems.
Let's not jump to create a new federal agency that will start changing all the rules of the game -- e.g., the CFPA is mandated to create "vanilla" loan products that all lenders must use unless waivers are obtained. We do not need more federally-mandated documents and protocols adding time and cost to the lending world (already a bit anemic). We need to presume the intelligence of our electorate and give them the tools to protect themselves.
Jim Randel is the founder of The Skinny On book series. His first book, The Skinny on the Housing Crisis, was just awarded first prize in a book competition sponsored by an organization of 600 business journalists.