Read the latest on the Consumer Financial Protection Bureau (CFPB).
- Consumer Inquiry Focuses on Bank Overdraft Fees
New York Times 22 Feb 2012
The Consumer Financial Protection Bureau (CFPB) has started inquiring about banks and the overdraft fees they charge to customers who bounce checks or withdraw more than they have in their accounts while using debit cards and ATMs. CFPB director Richard Cordray says the fact-finding exercise will focus on whether banks misled customers in 2010 about those fees after new U.S. Federal Reserve regulations for overdraft protection were implemented. Among the areas to be examined are whether banks systematically reordered customer transactions to maximize potential overdrafts and the impact of those fees on young and low-income bank customers. The examination could lead to additional regulations on consumer banking. Meanwhile, the CFPB already has created a "penalty fee box" where notifications would appear on checking account statements for customers who have overdrawn their accounts that details what fees were assessed.
- Consumer Agency Wants Oversight of Debt Collectors, Credit Bureaus
Washington Post 17 Feb 2012
The Consumer Financial Protection Bureau (CFPB) on Feb. 16 moved to bring debt collectors and credit bureaus under its authority, marking the first time the industries would fall under federal oversight. The watchdog proposed to oversee the country's largest debt collectors, the big three credit reporting agencies -- Equifax, Experian, and TransUnion -- and other smaller agencies. CFPB director Richard Cordray said the agency is prioritizing these firms because the role they play in Americans' financial lives increased greatly during the recession, with debt collectors pursuing more borrowers and generating more complaints than ever. Individuals who fall behind on their debts, blemishing their credit reports in the process, often have a difficult time lining up financing, renting a place to live, or even finding a job. Cordray said the credit industry is skewed because consumers do not have the freedom to choose a debt collector to work with and often they do not know which companies are collecting their data or what they are using it for. Industry groups say collection agencies are already subject to federal and state regulations, but the CFPB is the first U.S. agency to attempt to directly access these companies' records and study their business practices. The bureau announced the criteria it hopes to use to determine which companies will be under its purview, which in the case of debt collection agencies will be those with $10 million or more in annual receipts. For consumer reporting agencies, the CFPB proposed a minimum of $7 million in annual receipts.
- CFPB Eyes Overdraft Regs
Credit Union Times 15 Feb 2012
Consumer Financial Protection Bureau director Richard Cordray said his agency is talking about how to move forward on additional regulations that deal with overdraft protection and checking account disclosures. The regulator, which could propose rules later this year, is particularly concerned about the practice some banks have of manipulating the order in which checks are cleared in order to trigger more overdraft penalties. Cordray explained during a Feb. 8 virtual town hall meeting sponsored by the National Credit Union Administration that the CFPB will not duplicate current rules so that financial institutions will not have to juggle a bevy of rules. The overdraft and checking account rules will fall under the agency's "Know Before You Owe" initiative, which already covers mortgage cost disclosures, student loans, and credit card agreements.
- CFPB Outlines Plans for Mortgage Servicers
Washington Post 14 Feb 2012
As part of its plan to police mortgage servicers, the Consumer Financial Protection Bureau (CFPB) says that it will revise billing statements sent to homeowners. The new version will present not only the principal balance and interest rate but additionally will disclose the date that the interest could re-set as well as detailed information on late payment or penalty fees. The CFPB also will alter required disclosures for certain complex mortgages and draft new rules to ensure that servicers properly charge for homeowners' insurance. Servicers could not move borrowers into "forced-place insurance" unless they have fallen behind on insurance payments. The consumer watchdog also could propose changes that would allow consumers to find their own replacement insurance rather than rely upon the option provided by the mortgage servicer. The changes set forth by the CFPB on Feb. 13 apply to both servicing firms owned by banks as well as to nonbank servicers, which were excluded from a landmark settlement between servicers and state and federal agencies over improprieties. National Consumer Law Center staff attorney Alys Cohen called the moves by the CFPB a "strong first step," but she hopes that ultimately the regulator will force nonbank servicers to determine if borrowers qualify for a loan workout before they initiate foreclosure. Under the national settlement with servicers, they are only prohibited from moving forward with foreclosure at the same time that a modification is being considered.
- Foreclosure Claims Dominate CFPB Mortgage Complaints
Housing Wire 31 Jan 2012
According to the Consumer Financial Protection Bureau, more than 38 percent of the 2,300 mortgage complaints submitted to the agency in December were based on loan modification and foreclosure problems. Since its startup in July 2011, the agency has fielded nearly 10,000 grievances across its scope of monitored financial products, including payday loans, credit cards, and student loans. The CFPB reported that companies in question responded to 88 percent of the complaints, providing relief in more than half of the cases; almost 19 percent of the relief went to mortgage-related complainants. Out of the mortgage complaints, 889 were related to problems with loan workouts or foreclosures. Additionally, 501 complaints were tied to payments, escrow accounts, and loan servicing.
- CFPB Hears From Students About New Financial Aid Disclosure
American Banker 30 Jan 2012
According to the Consumer Financial Protection Bureau, students would find it useful to know exactly how much debt they will have when they graduate from college and how much they will owe in monthly loan payments. The agency asked students, parents, and educators to comment on its proposal for a new, streamlined financial aid disclosure. The CFPB released a prototype in October for the financial aid shopping sheet that colleges would provide to prospective students. Besides post-graduation payment expectations, the document would explain loan payments, identify other financial aid sources, and compare costs between private and public colleges. More than 22,000 individuals weighed in on the matter, with the majority saying the sheet would be helpful. Additionally, students said it would helpful to know a school's performance in terms of financial aid recipients being able to repay the debt.
- CFPB Outlines Regulatory Plans in First Semiannual Report to Congress
American Banker 30 Jan 2012
The Consumer Financial Protection Bureau released its first semi-annual report to Congress on Jan. 30, listing the steps it has taken to make the watchdog operational in its first six months. Those steps have included opening offices that focus on special issues such as fair lending, students, enlisted populations, and minorities; processing consumer grievances on credit cards and home loans; and recruiting more than 750 employees. In the next six months, the CFPB intends to release final rules requiring lenders to verify each borrower's ability to repay a mortgage; propose a rule combining disclosures required under the Truth In Lending Act and Real Estate Settlement Procedures Act; introduce a bevy of proposed new rules regarding the mortgage market, including new servicing guidelines, loan originator compensation rules, and limits on high-cost loans; and propose initial rules defining the range of its non-bank program.
- Consumer Bureau Taking a Closer Look at Appraisal Fees
San Diego Union Tribune 29 Jan 2012
The Consumer Financial Protection Bureau has until July to issue a revised HUD-1 settlement form to enhance disclosures about closing fees on home sales. With regard to appraisal fees, the agency could require two different disclosures -- one stating how much the appraiser is paid and another indicating how much of the fee is pocketed by the appraisal management company, which often is wholly owned by or affiliated with the lender. The National Association of Realtors has expressed concern about rising appraisal charges, with 70 percent of members reporting that consumers were hit with higher appraisal fees at the settlement table. Meanwhile, appraisers have seen compensation fall by upwards of 50 percent; and NAR is concerned that more appraisers are unfamiliar with the geographic area where they are performing valuations.
- Chief of New Consumer Finance Agency Says It Is Ready to Investigate, Sue for Illegal Lending
Washington Post 24 Jan 2012
The Consumer Financial Protection Bureau is ready to take to court companies that offer predatory or deceptive mortgages and credit cards, director Richard Cordray said on Jan. 24. Speaking before a congressional panel, he defended his appointment to lead the bureau and assured critics that the agency will partner with financial companies whenever possible. However, he emphasized, "we will not hesitate to use enforcement actions to right a wrong." Cordray was addressing Congress for the first time since his recess appointment by President Barack Obama earlier in January. He faces questions about the watchdog's actions and the legitimacy of his appointment. Republicans say the appointment is illegal because the Senate technically was not in recess. Republicans were holding minutes-long sessions during their vacation to block the president from making any appointments. Part of why the CFPB might lack credibility is because it is led by a director whose "appointment was constitutionally questionable," said Rep. Patrick McHenry (R-N.C.), chairman of the House Oversight Committee panel that Cordray addressed. McHenry is a major beneficiary of political donations from the payday lending sector, which will face much stricter oversight due to Cordray's appointment. Cordray said that he knows about the objections to his appointment, but "I'm in the job, it's an important job, it's a big job, it commands all of my time and attention, and all I can do is try to carry out the responsibilities."
- CFPB: We Need More Data About Payday Lenders
MarketWatch 24 Jan 2012
In a subcommittee meeting of the House Oversight Committee, the newly appointed head of the Consumer Financial Protection Bureau said the agency needs to learn the ins and outs of payday lenders before it can regulate the non-bank entities. "We need to analyze this and think carefully about it, hear from people and then make judgments," said CFPB director Richard Cordray. When asked whether he would ban payday lenders, he said he does not consider these issues in terms of banning products. Cordray also said his agency is setting up two advisory panels with banks and credit unions but could add another for nonbank firms. GOP legislators at the hearing recommended that Cordray provide Congress with information on the watchdog's agenda for the next year. The lawmakers said the details would help alleviate uncertainty in the business community.
- CFPB Imposes New Rules on Remittance Disclosures
American Banker 23 Jan 2012
The Consumer Financial Protection Bureau issued a final rule Friday that will impose new disclosure requirements for remittance transfers. Under the rule, remittance transfer providers must disclose the fees, the exchange rate and the amount of money to be received by the recipient. Providers must disclose the information when the customer first requests the transfer, and again when the payment is made. Consumers will generally have 30 minutes after payment is made to cancel a transaction. The new rules, required by Dodd-Frank, provide for a one-year implementation period. CFPB is also seeking comment on whether to make a few final adjustments to the rule, including setting a threshold that would minimize the impact of the regulation on community banks, credit unions and other companies that do not normally process the transactions.
- Payday Lending Is Focus of Consumer Bureau Alabama Hearing
Bloomberg 20 Jan 2012
The U.S. Consumer Financial Protection Bureau recently held its first public hearing, with regulators focusing on payday lending facilities. The Alabama meeting was the first under the leadership of newly appointed head Richard Cordray. "The purpose of all our research and analysis and outreach on these issues is to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small-loan market that is fair, transparent and competitive," Cordray said at the session. While no mention was made of specific new regulations or restrictions for the industry, the director assured the agency is "thinking hard about these issues." He also said that the public and consumer advocates should not grow complacent now that the bureau is operating, but should continue to work with local and state officials to combat such problems. According to Cordray, the CFPB will dig deep into the short-term loan industry to figure out what needs to change and how that can be accomplished. In that respect, he explained that the regulator will use its examination powers to audit the books of payday lenders, ask probing questions, and cooperate with them to rectify any wrongs. On the enforcement side, Cordray said the watchdog will focus in particular on unauthorized debits to consumer accounts as well as aggressive debt collection practices.
- Richard Cordray, CFPB Chief, Promises New Scrutiny of Banks That Make Payday Loans
Huffington Post 19 Jan 2012
Consumer Financial Protection Bureau director Richard Cordray, speaking in Birmingham, Ala., this week at the agency's first public hearing, pledged to turn the heat up on payday lenders -- including a select few traditional banks that have started to offer their own version of the short-term advances. Those banks have tried to differentiate their cash-advance products from those of payday lenders because of the way in which they are structured, but consumer advocates do not buy that argument. Based on its data, the Center for Responsible Lending finds that bank payday lenders are bound to fall victim to the same cycle of debt that befalls traditional payday customers. The statistics, purchased by CRL from an independent vendor, show that bank payday borrowers take out 16 loans and are mired in debt 175 days out of the year -- or twice as long as the Federal Deposit Insurance Corp. considers healthy. "The very structure of a bank payday loan makes it likely to trap customers in long-term debt even while the bank claims that the loans are meant for short-term use," noted CRL senior policy analyst Rebecca Borne. Moreover, because the bank model requires the borrower to have a checking account and to have pay and/or benefits deposited directly into that account, the risk of default is relatively low -- meaning that the rates banks charge for this service are strictly for profit. "We recognize the need for emergency credit," Cordray acknowledged at the Jan. 18 event. "At the same time, it is important that these products actually help consumers, rather than harm them."
- Watchdog Agency Hearing to Examine Payday Loans
AL.com 18 Jan 2012
The national debate over the controversial payday loan industry will take center stage in Alabama this week, when the government's fledgling Consumer Financial Protection Bureau holds its first field hearing at the Birmingham Civil Rights Institute. The CFPB said it chose the location because it is "a state with one of the highest number of payday lenders per capita in the country." Additionally, as noted by policy analyst Stephen Stetson of the Arise Citizens Policy Project in Montgomery, Birmingham just this month adopted a moratorium on new payday lending outlets in the city. "Payday lending in Alabama is a huge problem," he said. "It's basically a technology for stripping wealth from low-income communities." The CFPB's newly appointed director, Richard Cordray, is expected to attend the hearing -- which will including testimony from consumer groups, civil rights groups, industry representatives, and members of the public. While laws in the state are meant to regulate the industry, critics say they are not always effective. Despite regulations barring multiple, simultaneous payday loans to a single borrower, there have been numerous bankruptcy filings in the state by borrowers with as many as 20 outstanding payday loans. The agency said the hearing "will provide the CFPB with on-the-ground insight into the payday lending market."
- Some Lenders to Students Face Greater U.S. Scrutiny
New York Times 13 Jan 2012
Lead by its newly appointed director, Richard Cordray, the Consumer Financial Protection Bureau is turning up the heat on nontraditional lenders to students at for-profit colleges and trade schools that have high rates of default. Cordray drew a parallel between the practices employed by some private, non-bank student loans to those of the subprime mortgage lending business that lead to the housing collapse. "We're seeing some of the schools anticipating as much as a 50 percent default rate on their students, yet they're making those loans anyway," he said. In November, the CFPB and the Education Department issued a joint request for information from consumers on the private student loan market. But Cordray said the bureau already has seen evidence of problems in the market. "One of the things we see and have seen is lenders who market loans for borrowers knowing that those borrowers are unlikely to be able to pay those loans," the director said. The Association of Private Sector Colleges and Universities said the claims are "not substantiated."
- CFPB Gears Up to Examine Mortgage Firms
Wall Street Journal 11 Jan 2012
Now that the Consumer Financial Protection Bureau is up and running, thousands of non-bank mortgage lenders and brokers are being tapped for in-depth, government review of everything from their advertising practices to their loan volume. In its new "Mortgage Origination Examination Procedures" guide, the agency outlined how its examiners will evaluate the nonbank mortgage firms, beginning within a few weeks. The recent appointment of the bureau's first director, Richard Cordray, has set the wheels into motion to regulate the nonbank financial industry. Consumer advocates claim nonbank mortgage lenders contributed to the housing collapse in 2008. "The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness," Cordray said. "Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks." Critics of the agency counter that banks and nonbanks should not be treated the same since nonbanks are not federally insured, nor do they use depositors' money to make loans.
- Consumer Bureau Gets Busy With Mortgage Probe
Wall Street Journal 11 Jan 2012
In its first publicly disclosed investigation, the Consumer Financial Protection Bureau is scrutinizing PHH Corp.'s mortgage insurance practices. Earlier in January, the regulator notified the mortgage lender that it had launched a probe to assess whether the firm was adhering to federal law banning kickbacks in realty transactions. The CFPB's newly appointed director, Richard Cordray, recently warned the financial industry that it had a number of open investigations -- some of which may "require enforcement actions to stop illegal behavior." The agency is investigating whether PHH influenced borrowers to use specific mortgage insurers with which it shared a business relationship.
- New Consumer Chief Promises Strong Agenda
New York Times 06 Jan 2012
Newly appointed Consumer Financial Protection Bureau (CFPB) director Richard Cordray has encouraged consumers to contact the agency through its Website with complaints about banks, payday lenders, and other financial firms they believe have sold deceptive products or engaged in abusive behavior. The agenda outlined by Cordray on Jan. 5 was aggressive, with Cordray noting, "The consumer bureau will make clear that there are real consequences to breaking the law. We have given informants and whistle-blowers direct access to us. We took over a number of investigations from other agencies in July, and we are pursuing some investigations jointly with them. We also have started our own investigations. Some may be resolved through cooperative efforts to correct problems. Others may require enforcement actions to stop illegal behavior." Cordray said he would not hesitate to use the CFPB's rule making authority, despite concerns that his recess appointment could be challenged legally. He intends to work with lawmakers in both parties and said that his interests and that of lawmakers is the "same at heart." Nonbank financial firms will become a primary focus for the agency, including money transfer agencies, credit bureaus, and private mortgage lenders given that nearly 20 million Americans use their services and pay about $7.4 billion in fees annually. Cordray noted, "Many subprime loans during the housing bubble were made by nonbank mortgage brokers. Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them. But we must establish clear standards of conduct so that all financial providers play by the rules."
- Richard Cordray Should Go After Payday Lenders
San Francisco Chronicle 05 Jan 2012
With President Obama's unorthodox installation of Richard Cordray as the new head of the Consumer Financial Protection Bureau via recess appointment, the new watchdog finally is able to exercise its authority over nonbank entities -- including payday lenders. While this lending niche is a priority for many consumer advocates, they have not lost track of other key issues that they hope the regulator will address as well. Travis Plunkett of the Consumer Federation of America, for instance, hopes that the CFPB will rein in not only payday loan outfits but also mainstream banks that now are offering similar short-term, small-dollar loans. "Bank payday loans are slightly cheaper than traditional payday loans but can have steep late fees that payday loans do not," the National Consumer Law Center noted in a report. Plunkett also would like to see Cordray train the regulatory spotlight on financial abuses targeted enlisted persons, improper mortgage servicing and foreclosure, and unfair and expensive overdrafts. The National Association of Consumer Advocates' Delicia Reynolds Hand, meanwhile, is looking to CFPB leadership to "make the mortgage market safe again" by blocking lenders from steering borrowers into high-cost loans when they actually qualify for better terms. Other issues her group is pushing to the forefront of the CFPB agenda include abusive debt collection practices -- including new efforts to recover debt through social media and texting -- and a ban on mandatory pre-dispute arbitration clauses in contracts between financial service providers and their customers.
- Appointment Clears the Way for Consumer Agency to Act
New York Times 05 Jan 2012
On Jan. 4, President Barack Obama used his recess appointment powers to install Richard Cordray as head of the new Consumer Financial Protection Bureau (CFPB), effectively enabling the agency to monitor payday lenders, credit bureaus, and utilize all of the powers given to it under the Dodd-Frank law. Without a director at the helm, the agency was only able to monitor and enforce existing regulations on consumer financial products and not able to write new regulations for banking products. Cordray said, "Now, with a director, the CFPB can exercise its full authorities -- with respect to both banks and nonbanks -- to help those markets operate fairly, transparently, and competitively. [Most of the nonbank financial companies] had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers." The CFPB had begun its mission by placing regulators in the largest banks to review mortgage lending and consumer banking fees, and the CFPB director can now influence banking policy as a member of the Federal Deposit Insurance Corp., which is still waiting for the U.S. Senate to confirm its presidential nominees. While some applaud the recess appointment of Cordray, banking groups say that it places the future of the CFPB in constitutional jeopardy and could undermine its authority and credibility. Republicans have held up Cordray's confirmation because they want to reform the agency to include a five-member board rather than a single director, garner greater oversight and accountability for the agency, and ensure the budget for the CFPB goes through the congressional appropriations process.