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The future of the Consumer Financial Protection Bureau

Joe McIntosh of Golden Valley, Minn.

Tess Vigeland: Amid the din over the debt ceiling, you might miss another big story out of Washington this coming week: The Consumer Financial Protection Bureau is officially in business as of next Thursday. This is a new agency was created a year ago as part of the Dodd-Frank financial reform bill. Like the Consumer Product Safety Commission, which protects you from exploding toasters, the CFPB is supposed to protect you from things like exploding mortgages.

But it will start its work next week amid threats by Republicans to de-fund it. And President Obama has yet to name a director for the agency. This week, the woman charged with getting the agency up and running, Elizabeth Warren, testified before the House oversight and Government Reform committee. One lawmaker grilled her on how the agency plans to spend taxpayer money. Like many previous appearances, it was a testy one.

Jason Chaffetz: You obviously have a topline number and that was based on something, but you seem to be hiding the details of how you came up with those numbers.

Elizabeth Warren: Congressman, no one's hiding anything. We publish all contracts. It's not called the Federal Registry; there's a special place these are published.

Chaffetz: I'm not talking about those contracts. You have, only, on your website... I'm worried about the person who's out in Albuquerque or in Provo, Utah, how do they find out the make-up of all these numbers and the details as the Appropriations Committee suggested, they can't see that information. I doubt the public can see it either.

Warren: Then they may want to go to www.usaspending.gov.

That was Warren trying to respond to questions from Republican congressman Jason Chaffetz of Utah. It's far from the first time the former Harvard professor's been beat about the head while on the Hill. And later in the proceedings Democrat Jim Cooper of Tennessee urged more comity from members of the committee.

Jim Cooper: I didn't vote for Dodd-Frank. It had many good features, it had some less good features. But I do not want to be part of a committee treated Ms. Warren with more rudeness and disrespect than I have ever seen a committee witness treated. That is not the American way.

It may not be the American way, but it certainly has been the way, the path of this embattled agency. Less than a year into its existence, there's been talk of changing it from an agency with one boss to an agency, like the Securities and Exchange Commission with multiple overseers from both parties. As we've mentioned, there are also threats to withhold funding.

So how about a reminder of why Congress and the White House created the CFPB in the first place? Here's Marketplace's Jeff Horwich.


Jeff Horwich: When lawmakers crafted Dodd-Frank and the CFPB, they were thinking about folks like Joe McIntosh. Sure, the Bureau is supposed to police shady credit card deals, payday lending, student loans. But Joe's house in Golden Valley, Minn. -- that was the heart of the financial crisis.

Joe McIntosh: It was a spouse of a friend, actually, who did the mortgage. You know, you try to go with somebody you trust, and she burned me.

Joe bought the house in 2006. Wasn't clear at the time, but his buddy's wife put him in a "negative amortization" loan. Joe's monthly payments were fixed lower than the accruing interest; he was actually increasing his principle each time he sent in a check.

McIntosh: She just didn't fully disclose all of the potential damages that could happen. You know, I really didn't fully understand what I was getting into.

Joe was adding $600 every month to what he owed on the house. So he found another broker he trusted, who offered to refinance him into something safe.

McIntosh: The extent that I, again, was aware of was that I was signing a 30-year-fixed loan with a certain interest rate -- I think it was 6.5 percent or something like that. Boom, I'm good to go.

Yeah, not so much. Turns out, Joe could have qualified for a lower interest rate -- but no one told him that.

McIntosh: When the mortgage broker charged me a higher interest rate, he gets a bigger percentage of my loan or a certain kickback on my loan. That was one of the line items that I signed on one of these closing documents. I had no clue, it was in small print on one of them.

What Joe calls a kickback, is called a "yield-spread-premium" in the trade -- and it was legal at the time in most of the country, though it had just been outlawed in Minnesota. This is why Joe's got a lawyer, Jane Bowman.

Jane Bowman: The mortgage broker actually got 2 percent of the amount of Joe's loan to get Joe to sign on to higher interest rate. And I calculated the increased payments that Joe would be making over the life of the loan: The outer range was about $100,000.

Joe got a settlement, but he's stuck with the loan -- and a house he admits he can borderline afford.

McIntosh: Who know knows if I woulda elected to purchase the home I'm in if I knew I would have to pay an additional thousand dollars every single month. Probably not!

As much as Joe feels bamboozled by inscrutable paperwork and brokers out to make an easy buck, he's skeptical about a new Consumer Financial Protection Bureau that's supposed to prevent this kind of thing.

McIntosh: Unless this bureau is going to send somebody out and sit down with me at my closing to explain each line item on 30 pages, you know, I just have a very shallow understanding of all of that. Is it possible to make it transparent? For someone like myself, I would argue no.

His lawyer, Jane Bowman, says the political fog makes it hard to know just what the Bureau will and won't be able to do when it opens for business on Thursday.

In St. Paul, I'm Jeff Horwich for Marketplace Money.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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