System Thoughts Regarding The Consumer Protection Act

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

As competition increased between savings and loans, banks, and credit unions, banks were eager to attract loan applicants in order to increase revenue and compete with other financial institutions. Jack S. Light, the author of Increasing Competition between Financial Institutions, said in his book that “commercial banks are diversifying their assets toward higher percentages of mortgages and consumer loans, and thrift institutions are seeking authority to diversify their loan structures. Moreover, mounting pressures are working toward, and have partially succeeded in, changing the authority of thrifts to include third-party payment accounts similar to commercial bank demand deposits.” (Light) Because of this eagerness to bring in new clients, they were willing to give out loans without checking into the financial stability of the borrower or the business that was requesting the loan. Unfortunately since the banks didn 't look into their clients’ financials adequately, many clients defaulted on their loans because they could not afford the payments, especially when balloon payments started.

The increased pressure on mortgage lenders to be socially responsible and lend to all groups create an opportunity for banks to lend more and charge higher fees to select borrowers who they feel pose a greater risk of default (Palmer, 2015). The primary purpose of the CRA is to assist minorities and lower income individuals from neglect and discrimination. The CRA policy might have forced the banks to implement change to aid individuals who may not qualify for a home loan to be eligible. If the banks did not follow suit with the CRA policies, they might have missed opportunities, such as mergers, acquisitions, and profitability (Elbarouski, 2016). Allen (2011) concluded loose lending led to expanding homeownership in the United States, but lending to riskier borrowers led to an increase in the foreclosure

The OCC regulations required that lenders ensure the borrower's ability to repay, limited loans to one per month per borrower, required a minimum of one month between loans and required lenders to review the borrower's financial situation every six months to see if it had improved. As William M. Isaac, who previously chaired the Federal Deposit Insurance Corporation, reported in his article appearing in American Banker, within days of the OCC's rules, every major bank offering advance deposit loans pulled them from the market. Many of the OCC's rules that bankers found too burdensome to allow them to continue making advance deposit loans also appear in the CFPB's regulations for cash advance loans and are even more stringent. The fact that banks could not deal with all of the restrictions placed on them by the OCC suggests that private lenders will not be able to deal with the restrictions placed on them by the CFPB. Many storefronts will likely close, and since the new regulations cover all types of lenders, cash advance online loans will likely disappear or become much more difficult to

The role that the Dodd-Frank Act plays in the slow economic recovery from the 2008 financial crisis has many aspects. The regulatory and compliance component of the law helped to contribute to the slow economic recovery by adversely affecting the banking industry’s ability to provide credit specifically the community banks, ability to provide enough credit to the small business and start-up companies. The purpose of this paper is to show that there was a connection between the slow economic recovery and the Dodd Frank Wall Street Reform and Consumer Protection Act.

The new consumer protection with this law is that applications such as loan and credit cards must be easy to understand. For example there can’t be any “fine print” that is tricky or hard to understand and there cannot be any hidden fees. Next time banks take big risk and fail the government will no longer bailout them on the reason “too big to fail”. If the bank fails because of their business practices; just like any regular mom and pop store it closes and files bankruptcy.

In 1968 there was concern dealing with the treatment of consumer lending and the real rates (cost) of credit with lending institutions. This concern lead to the federal government creating the Truth in Lending Act (TILA). The Truth in Lending Act makes lenders reveal the terms dealing with the loan in a clear and concise manner. This way the public can determine which company and interest rate works best for them. Stemming from the truth in lending act originates Regulation Z, which is like the truth in lending act. Regulation Z forces lending institutions to provide the amount of money that was loaned, along with the interest rate, APR, fees of the loan, and charges for the terms of the loan in a clear and easy to understand manner.

This law protects consumers when dealing with creditors and lenders. This Act forces credit card companies to be transparent with the borrower and disclose interest rates and other information pertaining to an account prior to processing the loan. Lenders must disclose terms of the loan, total loan amount, annual interest rate and number, amount and due dates for all payments. “Regulation Z gives consumers the right to cancel certain credit transactions that involve a lien on the consumer’s principal dwelling.”(Truth in Lending,

Simultaneously, the Community Reinvestment Act (CRA) of 1977 was forcing banks “to make loans to low-income borrowers, especially minorities and particularly African Americans, with a focus on home loans...In order to make acquisitions, open branches, and generally grow its business, a bank must have a satisfactory CRA rating” (Allison, 2013, pp. 55-6). This essentially forced banks to make riskier loans than they otherwise would have.

• Compliance: Evaluating adequacy of compliance risk management and assessing banks’ effectiveness in identifying and responding to risks posed by new products, services, or terms. Examiners will also assess compliance with the following: – new requirements for integrated mortgage disclosure under the Truth in Lending Act of 1968 and the Real Estate Settlement Procedures Act of 1974. – relevant consumer laws, regulations, and guidance for banks under $10 billion in assets. – Flood Disaster Protection Act of 1973 and the Service members Civil Relief Act of 2003.

Consumer credit and spending has a great influence on the health of the economy. It seems like there having uncontrolled access to consumer credits can have a major effect on the housing, businesses and firms, and other lending agencies that issues lines of credit. According to the text, “The availability of consumer credit was a major factor in the slowing of the U.S. economy in 2007 and 2008; the credit crisis began when the housing market collapsed and homeowners began to default on mortgage in record numbers” (Farnham, 2014, p.330). This had a major effect on businesses and firms that dealt with consumer loans and other credit policies to consumers, and it required some of these polices to be tightened to prevent any more damage to the

The Consumer Financial Protection Bureau, an independent federal agency created in 2011 as a result of the financial crisis of 2008, has accused the payday loan industry of "unfair or abusive" practices almost since the day the agency opened its doors. In 2015, the CFPB announced that it would propose new regulations for short-term loans, including bad credit payday loans, auto title loans and certain personal installment loans. Many payday lenders began shifting their focus from payday loan products to installment loans. Installment loans have traditionally been more attractive to borrowers; with longer repayment terms and lower monthly payments, installment loans were a more budget-friendly option for many borrowers. By the time that the CFPB released its formal proposal in June 2016, many borrowers who would have chosen a payday loan in previous years found that they could now choose an installment loan.

According to Ferrell, Fraedrich, & Ferrell, (2011) the key facts and critical issues of the Countrywide Financial Meltdown were due to several different mishaps. In this case study, I have read that this organization was established to aid consumers with the ability to make purchases without a set criteria amount of revenue at their disposal. The issues came about when the customer would begin the repayment process. They start to claim they were unaware of the interest-rate because would be prudent onto the loan; they would fault the lender for late fees, excessive fees attached to their loans, and other default issues. These defaulted issues consisted of the borrowers lacked the knowledge of the risky loans due to their involvement. The subprime loans offered to those who did not qualify for regular loans. These factors I believed helped falsify lender information, allowing those with no assets to obtain a loans or debt that he or she would later live to regret. Then there were the Sarbanes-Oxley, which involved balancing their desired profits to avoid conflict of interest from occurring. The bank lack effective risk management techniques, offered poor communication, the CEO were not successful with his duties, and this is just to name a few. These home loans we defective due to their loans obligations with the bank knowledge of their low income with a higher principle return. These factors alone made the loans appear as unethical practices, which did not involve customer

Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(6):882-886 (ISSN:2141-7024) discussion of the findings. Finally we present conclusions and recommendations. LITERATURE REVIEW A non-performing loan is an advance by a financial institution that is not earning income and full payment of principal. As such interest is no longer anticipated (Van Greuning, & Bratavonic, 2003). There is no global standard to define non-performing loans at the practical level. Variations exist in terms of the classification system, the scope, and contents. This pitfall potentially adds to disorder and uncertainty in the non-performing loans subject. For instance, as described by Park (2003), during the 1990s,

In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide