Top 3 Methods CFPB Can Protect Novice Consumers

29. Nov, 2011 0 Comments

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With the launch of CFPB (Consumer Financial Protection Bureau), many eyes are trained on it to see how much it can help protect consumers. It should also focus on college going students who are not sufficiently financially literate and have no idea about credit reports. As a result, they are often taken advantage of. Since they rarely understand the financial choices that they make, they end up with debt and have no understanding as to how to get out of it. Given below are three ways in which CFPB can protect these young adults:

1. Educating students about student loans

Problem – When a student applies for student loans for furthering his or her education, he or she is not very informed about the monthly installments in which the loan has to be repaid. Though financial institutions and the federal government clearly discloses the terms and conditions of the loan, they are couched in terms that is not easy for the young college going adult to understand. As a result, he avails the loan but after a time, finds it difficult to repay it.

Education – The CFPB aims to educate these students about their monthly installments so that before availing the loan, they can understand the amount that has to be repaid every month. It should not be more than 10% of the monthly budget, so that it can be comfortably repaid.

2. Credit Cards for Students

Problem – The CARD Act of 2009 clearly states that credit cards should not be issued to under-21 youngsters. The exceptions to this are that the youngster should have “independent means of repaying” and should have a qualified co-signer. But the Act does not explain the term “means” explicitly because of which credit card companies, financial institutions and the students themselves take advantage of this loophole to acquire a credit card. This gets them into debt. The “means” used to acquire the card are proceeds from student loans that are depicted as income.

Solution – While applying for credit cards, it must be mandatory for the applicants to provide proof of their income like pay stubs or an employment letter. They can be further verified to check if the applicant has “independent means of repaying”.

3. Preparing budget worksheets that clearly shows expenses

Problem – As students are not financially literate, they do not understand the burden of carrying a student loan or the consequences of not being able to repay the debt in time.

Solution – Students should complete and submit budget worksheets that indicate their expenses and the manner in which they propose to repay the student loan. This will help them go through their finances and face their budget realistically.

All these are only practical problems that exist and suggestions in which college going students can be protected. It is hoped that the steps taken by CFPB will educate these youngsters so that they can manage their finances better.

Jennifer Lyttle is a regular article contributor for various finance-related websites and magazines. She loves writing on topics, like free credit report, forex trading, personal finance, and others.

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