Rural Americans Deserve a Strong Consumer Bureau to
Protect them from Unfair Financial Practices
Too many Americans living in rural areas have paid the price for an outdated regulatory system that has left our financial system vulnerable to collapse and our families without adequate protections. In the summer of 2010, Congress passed and President Obama signed the Wall Street Reform and Consumer Protection Act to rein in excessive risk on Wall Street and preserve economic opportunity on Main Street. This comprehensive financial reform, which put in place the strongest consumer financial protections in history, included the creation of a new, dedicated Consumer Financial Protection Bureau (CFPB).
The CFPB has one mission: to make the market for consumer financial products and services work for American consumers, responsible providers, and the economy as a whole. The Bureau seeks to promote transparency and consumer choice while preventing unfair, deceptive, abusive, and discriminatory practices. It uses a wide range of tools—from rule writing and enforcement to financial education and empowerment—to achieve these goals and protect consumers from the harmful practices that contributed to the financial crisis.
Rural Families and the Financial Crisis
- In 2005 and 2006, during the height of the subprime lending boom, at least nine percent of mortgages made to rural borrowers (those living outside a Metropolitan Statistical Area ) were subprime loans. Even in 2007, as subprime lending declined, 6.5 percent of loans made to rural borrowers were subprime loans. [McDash Online Core Database data (September 2009); Treasury analysis.]
- Borrowers who have subprime loans, including rural families, have come under severe stress during the recent financial crisis and are at high risk of foreclosure. Forty eight percent of outstanding subprime loans made in 2005 and 57.2 percent of such loans made in 2006 are in foreclosure or have not received payment for 60 days or more. [McDash Online Core Database data (February 2010); Treasury analysis.]
- The rural homeownership rate declined from 74 percent in 2004 to 71 percent in 2007. [Federal Reserve, “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances,” (February 2009) (“SCF”)]
Rural Families Deserve Clear Rules and Strong Enforcement
- The debt ratio (the ratio of total debt to total assets) for rural households increased from 13 percent in 2001 to 17 percent in 2007. [SCF]
- Forty-five percent of rural households carry a credit card balance, with a median balance of approximately $2,000. [SCF]
- Forty-four percent of rural households have mortgages and other debt secured by residential property, such as home equity lines of credit. The median amount owed is approximately $61,000. [SCF]
- 11 percent of rural households do not have bank accounts. Families without bank accounts are often forced to turn to costly alternative financial services which, until now, were not subject to federal supervision. In a survey conducted by the Federal Reserve, a significant fraction of households without bank accounts said that they did not have a checking account because they did not like dealing with banks (25 percent) or because the service charges were too high (12 percent). [SCF]
How the Consumer Financial Protection Bureau Benefits Rural Americans
- For rural Americans who want to buy a home: The CFPB is taking steps to consolidate and simplify with plain language two overlapping and sometimes inconsistent federal mortgage forms. The CFPB will, for the first time, provide ongoing federal oversight of both nonbank companies and banks in the mortgage market and protect borrowers from unfair, deceptive or other illegal mortgage lending practices.
- For rural Americans using alternative financial services: The CFPB will establish robust federal supervision and oversight over payday lenders and larger participants in other financial service markets, such as check cashers. The CFPB will combat abusive practices that harm consumers, helping young people avoid hidden fees and keep more money in their wallets.
- For rural Americans with credit cards: The CFPB will prevent evasion of the Credit CARD Act of 2009, which bans arbitrary rate hikes on existing balances and other unfair practices. For rural Americans who have used credit cards to get by when times are tight, the law will give them clarity on the interest rates they are charged.
- For rural Americans caught by unexpected overdraft fees: The CFPB will prevent evasion of rules that give consumers a real choice as to whether to join expensive debit overdraft programs so that they are not unknowingly charged unnecessary fees.
- For rural Americans who take out loans to cover the costs of higher education: The CFPB will be able to supervise private student lenders, fight unfair lending practices, and require lenders to follow fair rules of the road so that students have(1) the information they need to make smart choices.
- Empowering rural Americans to make smart financial choices by promoting financial literacy and financial capability: The CFPB promotes consumer financial literacy and capability with a dedicated office focused on ensuring that the CFPB’s expertise and research are used to help raise awareness, educate and empower consumers to avoid unfair practices, and make the best financial choices for themselves.