Read the latest on the Consumer Financial Protection Bureau (CFPB).
- Watchdog Agency Works Toward Clarity in Mortgage Lending
Louisville Courier-Journal 18 Jul 2012
The Consumer Financial Protection Bureau (CFPB) recently introduced a proposal on simplified mortgage disclosures. CFPB director Richard Cordray said consumers should really do their homework when consider a home loan. The agency is now seeking further review of the proposal as well as consumer testing before the disclosures could be required. As a result, the new "Loan Estimate" and "Closing Disclosure" forms may not actually be implemented until 2014. The proposed changes would show consumers their interest rates, monthly payments, loan amounts, and closing costs on the first page. Additionally, consumers would see how rates or payments could potentially change. "If consumers have a clearer understand of what the risks are in these products and what the actual pricing is, it's more likely they will end up with a sensible deal that they can maintain over the long term," said Cordray. The agency, seeking public comment on both disclosure forms, is holding a series of town hall events around the country.
- CFPB: Essential Reverse Mortgage Counseling Needs Work
Reverse Mortgage Daily 17 Jul 2012
The Consumer Financial Protection Bureau (CFPB) recently published a report on the reverse mortgage industry, in which it underscored the critical nature of counseling. "Counselors provide a line of defense, dispelling misconceptions and explaining fundamental concepts underpinning these products," according to the report. "Their services become increasingly important as borrowers face more complex choices as a result of new product offerings. However, the agency said that even after counseling, there still may be some confusion. The CFPB cited a 2009 Government Accountability Office report, which found that counseling agencies were not complying with the counseling protocol. But counseling firms said some of the concerns identified in the report have been addressed and are now moot; others they will continue to seek solutions for. "A lot of these challenges are not new," acknowledges John McCosh of CredAbility. "How can the counseling agencies have skin in the game? It's a question."
- House Holds Another Hearing on Impact of Dodd-Frank Mortgage Requirements
Mortgage News Daily 11 Jul 2012
A House Financial Services subcommittee recently held a hearing on proposed changes under the Dodd-Frank financial reform law, in particular the parameters for a qualified mortgage (QM) that would be exempt from ability-to-pay mandates and other proposed requirements. Testimony was heard from experts representing various industry and consumer groups, including the Center for Responsible Lending. Speaking on behalf of CRL, Senior Vice President Eric Stein stressed the need for a broad definition of QM so as not to block borrowers with solid credit from the mortgage market. The definition should include the use of specific "bright-line" standards, he said, so that both lenders and prospective borrowers fully understand which loans qualify as QMs and which do not. Stein also recommended that borrowers be empowered to take legal action if a supposed QM product falls short of the appropriate standards from the outset.
- CFPB's Proposed Mortgage Reforms Not Enough Say Some Consumer Activists
Huffington Post 16 May 2012
In April, the Consumer Financial Protection Bureau (CFPB) published a proposal to create permanent mortgage servicing reforms that would be in place by the time the $25 billion foreclosure settlement between the country's biggest lenders and state attorneys general expires in three-and-a-half years. While it is still early in the process, some consumer advocates already are saying that the proposed reforms are not adequate. The CFPB said the goal of the reforms is to eliminate two of homeowners' biggest grievances: costly errors and the endless runaround many have experienced when trying to avoid foreclosure. But the National Consumer Law Center's Diane Thompson says the federal agency needs to broaden the reforms even more, in part by also taking a look at costly force-placed home insurance policies. The CFPB stressed that the rules it outlined in April were not part of a formal proposal. The agency said it is seeking public feedback and will issue a formal proposal this summer.
- Stay-at-Home Mom Fights New Credit Card Rule
CNN Money 16 May 2012
A grass-roots campaign is gaining momentum against a new provision of the 2009 CARD Act that, starting in October of last year, has made it more difficult for stay-at-home parents to qualify for their own credit cards. The Federal Reserve rule dictates that credit card issuers consider individual income, rather than household income, to determine eligibility. As a result, many parents who rely on their spouse's income feel shut out of access to credit. One Virginia mom whose application for a Target card was rejected has refused to acquiesce to the new guideline, recently launching an online petition to persuade the Consumer Financial Protection Bureau -- which assumed jurisdiction over the rule last summer -- to amend it. The petition at Change.org already has garnered in excess of 30,000 signatures. "I used to be CEO of a small software consulting business and am now staying at home to take care of a toddler and first grader," wrote one stay-at-home mother on the petition. "If you had to pay someone to do what I do now, it would cost you at least $120,000, which is a lot less than what I used to earn. ... Don't you think I should be allowed to get a credit card on my own?" Holly McCall, the 34-year-old mother of two who organized the petition, delivered the signatures to the CFPB on May 15, supported by a handful of petitioners. Some of the women dressed as 1950s housewives, to illustrate how the rule "feels like a flashback to the 1950s because of the way women aren't empowered financially."
- What Is Arbitration? You Sign Away Rights. Is That OK?
Christian Science Monitor 15 May 2012
Many consumers may not even realize that they have signed an arbitration clause with their cell phone carrier or credit card provider, under which they agree to forgo their right to a trial or lawsuit if a dispute arises. Instead, the case is heard by a private arbitrator who makes a binding decision. The corporate world insists the practice is fair and curtails litigation costs. According to a 2010 study by the Pew Safe Checking in the Electronic Age Project, of the 265 different types of checking accounts offered by the country's 10 biggest banks, all but 10 require consumers to sign give up their right to a jury trial. Additionally, for 189 accounts, customers must agree to have the dispute settled by an arbitrator selected by the bank. The Consumer Financial Protection Bureau recently announced that it will investigate the use of such clauses in financial contracts. The agency is asking consumers to share their experiences with arbitration clauses by June 23, 2012.
- Consumer Knowledge of Credit Leaves a Lot to Be Desired
Housing Wire 14 May 2012
Americans are more knowledgeable about credit in 2012 than in 2011, but there are still gaps to close, according to a survey by the Consumer Federation of America. The results showed increased knowledge about which companies collect credit information and how to check it but a lack of knowledge about the negative impact of low credit scores. The majority of survey respondents knew who uses credit scores and that missed payments, personal bankruptcy, and high credit card balances can have affect the number. However, only 9 percent of respondents correctly knew that multiple inquiries within one or two weeks will not lower FICO scores or VantageScore credit scores. Thirty-four percent of respondents incorrectly believed that each inquiry lowers one's scores. More than half of respondents also incorrectly believed that a person’s age and marital status are used to calculate scores, and 21 percent incorrectly believed that ethnic origin matters. Only 44 percent of respondents were aware that a credit score measures risk of repaying loans rather than amount of debt or financial resources.
- Mortgage Brokers Face New Rules
Wall Street Journal 10 May 2012
On May 9, the Consumer Financial Protection Bureau said it may roll out new rules governing mortgage lending fees -- including one requiring lenders to charge flat origination fees, which borrowers pay as compensation to loan officers. The fees currently are calculated as a percentage of the loan size, but the CFPB hopes that a flat charge will deter loan officers from pushing borrowers into more expensive loans in order to trigger greater compensation for themselves. Another possible rule would restrict the amount by which borrowers can lower their interest rate through purchasing "discount points." The agency is not trying to end the practice but does want to ensure that borrowers who take this option actually see a meaningful reduction in their monthly mortgage obligation. The new rules, which would implement provisions of the Dodd-Frank Act, could be proposed this summer for targeted implementation in early 2013.
- U. Prof Joins Federal Consumer Financial Protection Unit
Salt Lake Tribune (UT) 09 May 2012
University of Utah law professor Chris Peterson, a vocal critic of payday lending, will take a leave from his position to join the enforcement unit of the new Consumer Financial Protection Bureau (CFPB). The agency is tasked with regulating everything from credit cards to mortgages. Peterson has called for a warning label on payday loans marking them as "predatory" and has criticized the Mortgage Electronic Registration System, which owns more than half of all U.S. home loans and has foreclosed on thousands of Americans. "He’s one of the leading scholars on consumer finance and predatory lending," according to Deepak Gupta, an appellate lawyer in Washington. "I think he’ll be a real resource for people in the agency." Peterson also has lobbied Congress and the federal government for tighter consumer lending policies on behalf of the U.S. Public Interest Research Group. Congress created the CFPB as part of the Dodd-Frank act in reaction to the housing bubble and financial collapse of 2007. It has been in operation since mid-2011.
- Consumer Bureau May Have Final Say on Arbitration Clauses
Los Angeles Times 01 May 2012
The Consumer Financial Protection Bureau (CFPB) has sought public comment on "how consumers and financial services companies are affected by arbitration and arbitration clauses." CFPB director Richard Cordray says, "Arbitration clauses are found in many contracts for consumer financial products. We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers' issues. This inquiry will help the bureau assess whether rules are needed to protect consumers." The U.S. Supreme Court had ruled previously that businesses, including credit card issuers and phone companies, could include arbitration clauses in their service contracts, which can help limit settlements and often favor businesses. With that decision, it would seem that the CFPB could do little to overturn their use, with Public Citizen reporting in 2007 that arbitrators sided with credit card firms 94 percent of the time in disputes with California consumers. The Dodd-Frank Act gives the CFPB authority to study the use of arbitration clauses in financial products and services, and the bureau "may prohibit or impose conditions or limitations on the use" of those clauses if it is in the public interest to do so. This statute could enable the CFPB to supersede the U.S. Supreme Court.
- Consumer Watchdog Still Lacks Sharp Eye on Fine Print
Bloomberg 29 Apr 2012
The Consumer Financial Protection Bureau (CFPB) has taken steps to ensure that the information received by consumers is clearer and easier to understand, which should enable Americans to more easily compare financial products and understand contract terms. The Dodd-Frank law ensured that the agency could help Americans become savvier purchasers of credit cards, student loans, and mortgages, among other financial products as a means of preventing another financial crisis. In July the CFPB is expected to issue a simpler form to help consumers understand and compare mortgage loan terms, including loan amount, interest rate and whether the interest rate could rise, prepayment penalties, and whether there are balloon payments. Supporters say that the forms also clearly explain the monthly amount borrowers would owe and services they can shop for, including pest inspections, courier fees, and title insurance, in an effort to save money. However, critics say the agency should do more to improve explanations of what settlement fees are for and whether they are required. These critics suggest that lenders should be required to speed up delivery of final loan terms, giving paperwork to borrowers at least three days before closing. Additional improvements are being called for in credit card forms and student loan agreements.
- Chasing Fees, Banks Court Low-Income Customers
New York Times 26 Apr 2012
Large U.S. banks increasingly are striving to land low-income customers with alternative products that can bear high fees -- including prepaid cards, check-cashing services, and short-term emergency loans -- partly because such products are largely excluded from recent financial regulations. Kimberly Gartner of the Center for Financial Services Innovation says unbanked ...
- Consumers Need More Protection, Not Less
New York Times 25 Apr 2012
Despite valiant efforts by the Consumer Financial Protection Bureau in its quest to protect Americans from abusive banking and lending practices, consumer advocates have raised concerns that the agency could overturn a rule by the Federal Reserve that limits the fees credit card issuers can charge new customers. A provision of the 2009 Credit Card Act...
- CFPB Paves Way for New Limits on Arbitration
American Banker 25 Apr 2012
The Consumer Financial Protection Bureau is soliciting input for a study that likely will lead to new restrictions on consumer arbitration clauses, which critics say can strip consumers of their right to litigate. The agency is initiating an inquiry, required under Dodd-Frank, into how arbitration and arbitration clauses affect consumers and financial services firms. Feedback will be accepted through June 23. Specifically, the regulator wants to know how frequently arbitration clauses are stipulated for consumer financial products and services, what claims consumers bring in arbitration, if financial firms bring claims against consumers, how each side is affected by actual arbitrations, and how they are affected by the clauses outside of arbitration. The CFPB will use the inquiry to determine whether new rules are needed to protect consumers.
- CFPB Wants to Avoid 'Disincentives' for Lenders in Qualified Mortgage Rule
American Banker 23 Apr 2012
The Consumer Financial Protection Bureau is focusing on avoiding disincentives that would deter mortgage lenders from making loans to higher-risk or non-traditional segments, as part of the qualified mortgage (QM) rule. The rule will compel lenders to verify a borrower's repayment ability unless a loan meets the definition of a QM. "The Bureau wants to ensure that lenders are not creating conditions that make loans more expensive, or access more difficult, for certain populations," deputy CFPB director Raj Date told attendees of the Greenlining Institute's recent economic summit in Los Angeles. Consumer advocates have worried that too narrow a definition of QM will prompt lenders to tighten underwriting guidelines, possibly cutting off more African-American and Hispanic borrowers.
- Buy Here Pay Here Chain Is Probed
Los Angeles Times 21 Apr 2012
The Consumer Financial Protection Bureau has launched an investigation into Phoenix-based DriveTime Automotive Group, one of the largest Buy Here Pay Here used-vehicle chains. DriveTime, with 90 dealerships nationwide, is the first Buy Here Pay Here company to be investigated by the federal agency. The Buy Here Pay Here industry consists of used-car dealers that lend to people with damaged credit by offering direct, in-house financing rather than using outside lenders like banks or credit unions. Borrowers have griped, however, about high prices, exorbitant interest rates, onerous payments, and speedy repossessions that often ruin their credit and drag them into bankruptcy. In January, CFPB director Richard Cordray said the industry is a priority for the fledgling regulator. The investigation marks the most prominent step taken to rein in an industry that has flourished below the radar of regulatory scrutiny for years.
- CFPB Embraces Contentious 'Disparate Impact' Theory for Discriminatory Lending
American Banker 19 Apr 2012
On April 18, the Consumer Financial Protection Bureau (CFPB) took a hard line against lending abuses, saying it will pursue actions against lenders that discriminate -- even when that discrimination is inadvertent. Financial institutions can have a "disparate impact" when their policies put certain borrowers at a disadvantage, even if there is no intent to do so; and that impact can be just as damaging as overt discrimination, officials declared. "We cannot afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from credit markets," said CFPB director Richard Cordray, speaking before the National Community Reinvestment Coalition. While he said financial institutions would be given some measure of flexibility, Cordray stressed the importance of ensuring fair lending practices. "Conduct that may seem benign -- what the lawyers call 'facially neutral' actions -- can create effects that are just as devastating for those marginalized communities," he said. As an example, Cordray said that giving loan officers too much latitude in deciding how much borrowers should pay can lead to minority or female consumers systemically being charged more than white or male borrowers with similar credit backgrounds.
- Industry, Consumer Groups Urge Broad QM Definition in Letter to CFPB
American Banker 17 Apr 2012
The National Community Reinvestment Coalition and other housing advocates teamed with banking interests to address concerns over what stipulates a "qualified mortgage" under a new rule expected from the Consumer Financial Protection Bureau this year. The rule will require lenders to verify a borrower's repayment ability, unless he or she is taking out a QM. The trade and industry organizations joined forces to dispatch a letter to the CFPB on April 16, urging the regulator to broadly define the term. A narrow definition applicable only to a fraction of products and borrowers, they warned, would make lenders skittish about non-QM loans and, in turn, inflate the costs and risks of those products. A broad definition "is the only way to help the economy and at the same time ensure that the largest number of credit-worthy borrowers are able to access safe, quality loan products for all housing types, as Congress intended" under the Dodd-Frank financial reform law, the letter declared.
- Agency Weighs In on US Housing Debt Cases
Financial Times 28 Mar 2012
The Consumer Financial Protection Bureau, in a March 26 court filing, argued the case for allowing distressed homeowners to more easily cancel some housing debts. The agency contended that borrowers seeking to rescind mortgages based on faulty disclosures should not have to file a lawsuit within the first three years of the loan, but simply provide the creditors with written notice. The action by the CFPB could mean even greater compliance costs for lenders that are already striving to improve their lending and servicing practices. However, consumer advocates say they also expect to see more loan modifications as lenders and homeowners try to hammer out a compromise before initiating litigation. "The consumer's right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices," said CFPB director Richard Cordray.
- In Considering Mortgage Rule, CFPB Focused on Access to Credit
American Banker 28 Mar 2012
The Consumer Financial Protection Bureau will issue a final rule by the end of June defining what constitutes a "qualified mortgage" that will be exempt from new rules compelling lenders to verify borrowers' repayment ability. Deputy director Raj Date says the agency is looking closely at consumer credit access as it finalizes the rule. The CFPB also plans to spend the coming months working on national servicing standards, monthly mortgage statement disclosures, and force-placed insurance notices, among other priorities.