Congress Throws Consumers Under the Bus
Last week, House lawmakers passed a bill that threw consumers under the bus. The Financial Choice Act would gut the Dodd-Frank financial reform legislation of 2010 by giving the president the power to fire the heads of the Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, at any time for any -- or no -- reason. It would also provide Congress with sweeping power over the CFPB's budget, which means that lawmakers could defund the agency entirely. That’s a shame, because in the six years since the CFPB was established, it has provided nearly $12 billion in relief for more than 29 million consumers. The CFPB was created out of Dodd Frank in order to create a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace. The agency’s main goals are to:
- Root out unfair, deceptive, or abusive acts or practices by writing rules, supervising companies, and enforcing laws
- Solicit and respond to consumer complaints
- Enhance financial education
- Research the consumer experience of using financial products
- Monitor financial markets for new risks to consumers
The CFPB has cracked down on the credit card industry, debt collectors, payday lenders for-profit colleges, mortgage companies and banks. The potential defanging of the bureau would be a big loss for millions of Americans. Unfortunately, adding to consumer pain is Section 841 of the Choice Act, which would repeal the Department of Labor’s Fiduciary Rule, the first phase of which went into effect on June 9th.
As a reminder, the DOL fiduciary rule requires anyone who handles retirement assets and gives financial advice to retirement savers, to work in their clients’ best interest and to provide disclosure of conflicts, when they exist. The rule, which was created by the Obama Administration, was due to begin implementation on April 10th, but the Trump Administration put a 60-day hold to determine how the rule would impact the near $3 trillion dollar retirement savings industry.
In a surprise turn, last month Labor Secretary Alexander Acosta said the rule would not be further delayed and so on June 9, a Phase One of what I am calling “fiduciary-lite,” went live. Why lite? Because the rule will not be enforced until the Labor Department determines whether the second part of the rule, which is where consumer legal protections would be enacted, is necessary. Phase two was supposed to be implemented on January 1, 2018 - until that time, DOL will not enforce the rule or penalize anyone who doesn’t follow the new standards.
Even in its original form, the fiduciary rule would only apply to retirement accounts—in non-retirement accounts, many professionals will still be held to a lesser standard, called “suitability,” which means what they sell you or advise you to do has to be appropriate, though not necessarily in your best interest.
While the DOL rule remains in limbo, it’s important to know that there are currently about 80,000 financial professionals who already adhere to the higher, fiduciary standard, including those with the CFP® certification from the Certified Financial Planner Board of Standards (CFP), CPA Personal Financial Specialists (CPA-PFS), members of the National Association of Personal Financial Advisors (NAPFA), those who have earned the Chartered Financial Analyst (CFA) designation and about 70 percent of the members of the Financial Planning Association (FPA). Your best bet is to ask your advisor or broker if she is one of them.