Read the latest on the Consumer Financial Protection Bureau (CFPB).
- 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.
- Prepaid Cards Set Good Example for Simpler Disclosures
US Banker (03/12) Tescher, Jennifer; Newville, David 28 Mar 2012
The Consumer Financial Protection Bureau (CFPB) continues to tout the benefits of simplified and standardized fee disclosures for financial products. "This kind of straightforward transparency promotes more informed and more responsible decision-making by consumers across a number of financial markets," according to CFPB director Richard Cordray. But to make a lasting impact, financial providers must perceive the disclosures as more than a requirement: they must view them as an opportunity to positively influence consumers' behaviors and choices. The Center for Financial Services Innovation (CFSI) recently published recommendations for a standardized fee box for general-purpose reloadable prepaid cards. The organization recommends clear and consistent placement of disclosures, as well as thoughtful design, to encourage consumers to actually read them. The CFSI also believes simple, clear, and straightforward language is critical.
- CFPB Web Portal to Answer Consumer Questions
American Banker 23 Mar 2012
The Consumer Financial Protection Bureau recently announced the launch of its new interactive database, which allows consumers to obtain answers on common inquiries having to do with financial products. The "Ask CFPB" portal is just one of many efforts by the bureau to reach out to the public. CFPB director Richard Cordray said the goal of the portal is to provide consumers with clear, unbiased information. He added that the agency will steer clear of any fiduciary relationship with borrowers. "We're not giving personal, contextual advice for an individual who wants to decide whether they should open this bank account or do that," he clarifies. "We're providing general background for people to educate themselves and give them the availability to make those choices for themselves." The platform uses plain language to answer more than 350 questions, which fall into three categories: definitions, explanations, and situations. The bureau said it intends to add more questions and answers based upon user suggestions.
- Sights Set on Debt Collectors
NorthJersey.com 18 Mar 2012
In the absence of strong federal oversight, civil suits have been the primary outlet for enforcement of federal consumer protection laws such as the Fair Debt Collection Practices Act. However, the Consumer Financial Protection Bureau, set up under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, bolsters the U.S. government's enforcement of consumer debt-collection statutes. To that end, the agency has proposed regulations that will give it unprecedented authority to examine and supervise debt collectors. "It should be a dramatic change, in that until now the federal government has engaged in only a modest amount of enforcement of the Fair Debt Collection Practices Act," said attorney Charles Delbaum of the National Consumer Law Center, noting that private attorneys so far have been the ones to enforce the laws. CFPB director Richard Cordray has explicitly stated that his bureau intends to go after debt collection firms. "While debtors need to pay back their creditors, the methods used by some debt collectors are just unconscionable," he told attorneys general gathered in Washington earlier in March.
- Merkley Announces Fight Against Payday Lenders
Portland Business Journal (Oregon) 12 Mar 2012
Sen. Jeff Merkley (D-Ore.) recently announced plans to introduce federal legislation to combat predatory payday lending. Merkley was speaker of the Oregon House of Representatives in 2007 when the lawmakers passed the country's strictest restrictions on payday lending stores, limiting interest rates at 36 percent. "While Oregon is lucky to have state legislation in place to stop the worst practices, there are still loopholes and offshore websites that are dragging Oregon families into black holes of debt. We have to bring order to the Wild West of the lending market," Merkley said. He also announced that he sent a letter to the new director of the Consumer Financial Protection Bureau in attempt to seek his help in the fight against unscrupulous lenders.
- CFPB Now Accepts Bank-Fee Complaints
MarketWatch 01 Mar 2012
The Consumer Financial Protection Bureau (CFPB) has begun accepting consumer complaints about bank accounts, including concerns about fees related to bank withdrawals, ATM cards and debit cards, and payment issues. Consumers can file complaints using the CFPB's Website, by mail, fax, or phone. CFPB Director Richard Cordray says, "Consumers need someone on their side to keep banks and credit unions accountable -- that is our job at the Consumer Bureau." Once a complaint is filed, the bureau will work toward a speedy response for consumers, with firms expected to respond to complaints within 15 days. CFPB hopes to close all complaints within 60 days, and the agency also offers consumers a way to dispute banks' resolutions. Javelin Strategy & Research issued a report that estimates that consumers pay 26 percent more in checking account fees than they did in 2002. Meanwhile, Bank of America has said it would consider employing a monthly fee for basic checking account users that do not bank online, buy additional products, or maintain certain balances. As larger banks seek out ways to increase revenue through additional fees, many consumers are leaving larger banks for smaller community banks and credit unions.
- CFPB Shifts Gears on Revising Good Faith Estimate Form
American Banker 28 Feb 2012
The Consumer Financial Protection Bureau, which is assembling a panel of small businesses to review its mortgage application and closing disclosures, will look to merge Real Estate Settlement Procedures Act and Truth in Lending Act regulations before finalizing changes to the good-faith estimate. The agency wants to move from a 10 percent tolerance level to a zero-tolerance level on cost estimates when a lender recommends an independent settlement servicer provider, in order to make loan estimates more reliable for borrowers.