Viewpoint

Here, a monthly perspective from Consumers Union on the latest challenges—and possible solutions—facing U.S. consumers today. See archived installments of Viewpoint.

Financial protections consumers need now

The nation's top cop for policing the financial services industry and guarding consumers is the new federal Consumer Financial Protection Bureau. It doesn't assume its full powers until July, but detractors are already labeling the bureau anti-bank, anti-growth, and anti-American and vowing to thwart it.

C'mon. Consumers Union has sought transparency, truth-in-labeling, and safety measures for everything from canned peas to cars, and it's high time for financial services to come into the fold. It's perhaps a sign of how much work lies ahead of the bureau that the idea of safe and understandable financial products and practices is being portrayed as radical. Here's what we believe the agency needs to do:

Stop credit-card rip-offs

The recent Credit Card Act has put an end to some of the most egregious practices of credit-card banks. But there's much more the bureau has to do. It must enforce the law and ensure that credit-card banks don't come up with new evasions. We think allowable late fees and repeat late fees are still too high, at $25 and $35, respectively. And the regulation doesn't address the size of penalty interest rates, which we think should be reduced to no more than seven percentage points over the prior rate. Now there's no cap. Also, terms and conditions should be understandable and concise enough to fit on two pages.

Standardize protections no matter how you pay

Merchants and service providers will accept your money in myriad ways—via credit card, debit card, prepaid card, and soon, mobile-phone payment account. But credit cards offer far more consumer protections than the other ways you pay. The bureau should extend to each of these payment methods full protection from unauthorized charges and mistakes, including the right of consumers to get the disputed money back into their account within 10 business days. (We'd like that reduced to five days.)

It must work with Congress to extend to all forms of card and mobile payments the right to reverse a charge when there's a dispute with a seller over the product. Now that legal right applies only to credit-card payments. And inappropriate fees, such as charges to use customer service or to check the balance on a prepaid card or mobile-phone account, overdraft fees, denied-transaction fees, and nonuse fees, should be banned.

Require credit bureaus to fix mistakes

Federal officials must audit credit reporting agencies to make sure they're achieving the maximum possible accuracy in consumer credit files, which is their mandate. And consumers need access to the same information that a creditor receives when ordering a report about that person; that doesn't occur now. Reporting agencies must also fix errors. Now they use an automated system that verifies only that the furnisher of the disputed data has a record of it, without investigating.

End delayed deposits and other checking nightmares

First, eliminate "demand drafts," which are checks somebody else can create on your account, saying you've authorized it. A scammer's honey pot, we say. And banks shouldn't be allowed to clear checks in an order that maximizes the number of bounced checks and overdrafts. Finally, banks must speed up money available from deposits. Now they can make consumers wait until the second business day plus weekends to get access to that cash.

Watch the mortgage market for emerging scams

Lest lenders exacerbate the ongoing pain, the bureau must find and do away with new forms of toxic products and features and careless lender practices. Brokers and mortgage lenders should be prohibited from steering homebuyers and homeowners into higher-cost loans when they could qualify for better ones. And of course, the bureau must ensure that all future home loans are based on the consumer's ability to repay the loan.

Put an end to mandatory arbitration in financial deals

It's not fair to force consumers making a financial transaction to accept binding arbitration, especially long before any dispute has even arisen. But that is the case with everything from checking accounts to mortgages. If consumers and other parties want to arbitrate, they can agree to do so voluntarily.

Halt debt-relief scams and debt-collection abuses

The bureau must finish the job of protecting consumers from high-fee debt settlement companies by expanding protections to include more kinds of transactions. Consumers also need better protections from scammers who claim that there's a painless way to get out of debt.

Everyone, of course, should pay their bills, but the bureau should put an expiration on very old debt. When seven or more years have passed, how can you prove your prior payments to a debt buyer or debt collector or even tell whether the amount claimed is correct? The bureau should also put a stop to "robo-signing" and require that everyone who tries to collect a debt—in court or not—must have on hand supporting evidence showing who owes the debt and how the amount sought was calculated, and must share that evidence with the consumer upon request.

Help those who complain

Consumer complaints will be one of the best ways for officials to see what's really going on. And the bureau must help resolve disputes, because consumers will stop seeking it out if there's no action. It's essential that complaints be available to the public, even as the privacy of the consumer must be protected. Sunlight is, after all, a great disinfectant. The National Highway Traffic Safety Administration and the Consumer Product Safety Commission already make public (or soon will) consumer complaints about cars, tires, car seats, and a multitude of other products. It's time to disclose gripes about financial products and services, too.