Read the latest on the Consumer Financial Protection Bureau (CFPB).
- New Standards for ‘Safe’ Loans
New York Times 07 Feb 2013
New mandates under the U.S. Dodd-Frank Act will require mortgage lenders, starting next January, to verify that prospective borrowers can pay back loans. During the housing bubble, many lenders were lax on traditional underwriting standards. An “ability-to-repay” rule, adopted last month by the Consumer Financial Protection Bureau, is meant to protect borrowers from risky lending. “The rule sets standards for what’s a safe loan and what isn’t,” according to Kathleen Day of the Center for Responsible Lending, “and it takes away a lot of the tricks and traps that lenders were using to talk people into refinancing.” Under the rule, lenders must document the borrower’s job status, income and assets, debt, and credit history before approving a loan. The lender also must calculate the borrower’s ability to repay the principal and interest. “Qualified mortgages” must meet a series of requirements: points and fees cannot exceed 3 percent of the loan amount, for example, and borrowers must have a debt-to-income ratio of no more than 43 percent. In exchange for their compliance, the lenders would, in the event of a foreclosure, have a “safe harbor” from litigation challenging the legality of a loan. Mortgages that fail to meet the 43-percent debt-to-income cutoff but that do meet affordability standards under Fannie Mae and Freddie Mac can still be considered qualified mortgages. Also, balloon-payment mortgages will be treated as qualified mortgages when originated and held in portfolio by community-based lenders in underserved markets.
- CFPB Scrutiny of Bank-College Partnerships Deepens
American Banker 06 Feb 2013
Relationships between banks and universities will be more thoroughly probed by the Consumer Financial Protection Bureau, with new regulations and limitations on certain practices a likely outcome. The watchdog launched a major data collection initiative last week, which could ultimately cause the agency to amend financial disclosures to students and restrict certain kickbacks that schools get for partnering with a bank. Through such alliances, banks offer students debit cards, savings accounts, or other kinds of credit that do not necessarily fall under the protections of the Credit Card Accountability Responsibility and Disclosure Act of 2009. One area the CFPB is investigating is student ID cards that can double as debit cards in exchange for partnering with a specific financial institution. The regulator is concerned not only about the contracts themselves between banks and universities but also how the underlying cards are marketed to students, who often are left to believe that they are mandatory -- not optional. "There's a lot of pressure from universities to strike these deals ... that would try to maximize the amount of money that the university is going to receive," notes Community First Credit Union of Florida President and CEO John Hirabayashi. "Anything that would protect the student and at least make them aware that they options is good."
- Republican Senators Introduce Bill to Halt CFPB Funding Until Director Confirmed
American Banker 01 Feb 2013
Republican Sens. Mike Johanns of Nebraska, Lamar Alexander of Tennessee, and John Cornyn of Texas have introduced legislation to halt certain work at the U.S. Consumer Financial Protection Bureau (CFPB) until the agency confirms a director. The measure would stop the transfer of funds from the Federal Reserve for any actions, including implementing rules, that require the approval of a director. Its introduction follows a federal appeals court ruling last week against three recess appointments to the National Labor Relations Board, which casts doubt on the legality of CFPB Director Richard Cordray's recess appointment. Ahead of the court's decision, President Barack Obama already re-nominated Cordray as CFPB's director, but it is unclear if the contentious atmosphere will hinder his reappointment as Senate Republicans look for changes to the agency's structure. Republicans would like the bureau to establish a five-person commission instead of a single director; to subject the agency to the appropriations process; and give other banking regulators more discretion to overrule the agency's decisions.
- Consumer Bureau Seeks Input on Bank Products for Students
Reuters 31 Jan 2013
The The Consumer Financial Protection Bureau (CFPB) is soliciting information on college and university-affiliated banking products as part of its effort to better understand the types of financial services that are marketed to the student body. The regulator is interested in what information schools pass along to financial firms as part of agreements to offer student identification cards that double as debit cards. The cards also are used to access loans and scholarship funds as well as school-sponsored bank accounts. The CFPB also wants to know more about students' experiences with such services, how products are marketed, and what fees are associated. Students and their families, colleges, and financial institutions can submit their comments to the bureau until March 18.
- Banks Worry CFPB May Be Weakened
Wall Street Journal 30 Jan 2013
The U.S. Consumer Financial Protection Bureau (CFPB) now faces legal uncertainty in light of the recent federal appeals court ruling that President Barack Obama's recess appointments to the National Labor Relations Board were unconstitutional. The decision raises questions about the legality of Richard Cordray's recess appointment as director of the agency, which could mean that the agency's rules affecting the financial market and mortgages are invalid if Cordray's appointment is similarly invalidated. A similar challenge to Cordray's appointment has been filed in U.S. District Court, and if the court rules against the appointment, the CFPB's authority over fair mortgages to the regulation of prepaid cards would be called into question. Additionally, the agency could be prevented from issuing new rules, but the CFPB has said the appellate court ruling has no impact on the agency. Experts suggest that some of the rules issued by the CFPB were issued through its authority from the Federal Reserve and other agencies, and that the U.S. Treasury could assume some of those powers in a pinch. "I don't anticipate that financial-service providers will disregard final CFPB regulations while waiting for this to play out in the courts," said Laurence Platt, a banking-industry lawyer with K&L Gates LLP in Washington.
- For CFPB, Parsing Which Rules Stay, And Which May Go
American Banker 29 Jan 2013
Although Richard Cordray's 2012 appointment to the Consumer Financial Protection Bureau (CFPB) could be invalidated on a procedural technicality, legal experts say some of his approvals of recent mortgage regulations may still be upheld. There are questions over whether nonbank rules, such as those applying to payday lenders and credit reporting agencies, will remain in place. Without a permanent director, the agency would lack the authority to create or enforce the rules. A recent court ruling invalidating some of President Obama's other recess appointments has led to questions about whether Cordray's appointment will stick, and whether many rules written by the CFPB in the last year would still be valid. Recent mortgage rules might not be overturned; they essentially ban lenders from making the riskiest loans. Even if the Supreme Court voided the existing qualified mortgage rule, the Treasury secretary could assert the authority to issue a new rule under the Dodd-Frank Act. If Cordray is determined to be just the acting director for the CFPB, then the watchdog would not have authority over certain areas that include prohibiting unfair, deceptive, or abusive acts; prescribing rules and model disclosure forms; and supervising non-depository institutions.
- Cordray Nominated to 2nd Term as Nation's Financial Watchdog
Toledo Blade (OH) 25 Jan 2013
Consumer Financial Protection Bureau (CFPB) head Richard Cordray has received President Obama's nomination to oversee the fledgling regulator for a new five-year term. Under Cordray's guidance, President Obama said, the bureau has made it more difficult for shady operators to trick Americans into taking out home loans that they cannot afford to repay. "We've set clearer rules so that responsible lenders know how to operate fairly," he remarked. "We've launched a 'Know Before You Owe' campaign to help parents and students make smart decisions about paying for college. We've cracked down on credit card companies that charge hidden fees and forced those companies to make things right. And through it all, Richard has earned a reputation as a straight shooter and somebody who's willing to bring every voice to the table in order to do what's right for consumers and our economy." Despite Cordray's good standing among both Democrats and Republicans, GOP senators opposed his initial nomination because they objected to the creation itself of the CFPB. Obama navigated that opposition by using his recess appointment power to install Cordray while the Senate was not in recess. A U.S. Court of Appeals case is now challenging his recess appointments, which could influence Cordray's current status as CFPB director.
- Facebook Friends Fronting Debt Collectors Draw U.S. Regulation
Bloomberg BusinessWeek 24 Jan 2013
The U.S. Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) are considering new restrictions on how debt collectors can use social media, such as Facebook and Twitter, to contact overdue borrowers. The underlying law for the current debate is the Fair Debt Collection Practices Act, which was implemented in 1978, when the debt-buying industry barely existed. Attorney Billy Howard says that he has seen more aggressive social-media use among debt collectors, including rude postings on someone's account, or pretense as a friendly person to get an alleged debtor’s attention. This year, U.S. regulators are focusing more on the debt collection industry, which generated 180,000 consumer complaints to the FTC in 2011. Credit card issuers like Capital One and JPMorgan Chase also are facing supervision over how they handle debtors. In October, the CFPB announced a $112.5 million settlement with American Express, made partly over claims of improper debt collection practices. In the second quarter, the CFPB will start to field grievances about the industry, using a complaint system that connects federal regulators with the companies to find solutions for consumers.
- CARD Act Fight to Offer Clues to Future CFPB Regs
American Banker 23 Jan 2013
Three years after implementation of the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act), the Consumer Financial Protection Bureau (CFPB) must determine whether or not the law has helped the public. While consumer advocates argued that it would increase transparency and fairness in the card market, critics in the industry said it would make credit more elusive as well as more expensive. The CFPB is now taking comments on the law's impact and examining a variety of claims, including studies with conflicting results. If the CARD Act is found to have increased costs and reduced credit availability, it would undermine arguments for price restrictions. If consumers are found to have benefited, on the other hand, consumer advocates may be encouraged to pursue further restrictions on card pricing. In general, however, it is agreed that the law successfully reduced the specific fees that it targeted, such as over-limit penalties and late charges.
- CFPB Mandates Free Appraisal Reports for Borrowers
American Banker 22 Jan 2013
Mortgage lenders will be compelled to offer free copies of home appraisals to borrowers as part of several new appraisal rules released by the Consumer Financial Protection Bureau (CFPB). The free appraisal rule, solely a CFPB effort, follows one issued earlier in the week by all six federal financial regulators on high-priced mortgages. In the bureau's independent rule, the agency allows lenders to still charge borrowers "a reasonable fee" for conducting the appraisal; however, the copies to the applicant must be provided at no charge. This includes all appraisals and any home value estimates. "This rule will guarantee consumers can receive important information on how a lender determines the value of the home," according to CFPB director Richard Cordray. "Having this information available promptly makes it easier for loan applicants to make informed decisions."
- Pay Rules for U.S. Mortgage Brokers Issued by Consumer Bureau
Bloomberg 18 Jan 2013
Loan officers will face restrictions on their ability to offer expensive mortgages under a new rule issued by the Consumer Financial Protection Bureau (CFPB) on Jan. 18. The rule bars compensation that varies with the loan terms; therefore, an originator cannot earn more by putting a borrower into a loan with a higher interest rate, a prepayment penalty, or steeper fees. It also abolishes "dual compensation," in which loan officers are paid by the consumer as well as by the creditor or other entity. "Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator," said CFPB director Richard Cordray. "These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster."
- New Mortgage Rule Aims to Protect Borrowers
USA Today 10 Jan 2013
The U.S. government states that a new federal rule on home lending, effective in 2014, will give consumers greater protection against risky mortgages. However, it is not immediately expected to make financing easier to obtain. According to the Consumer Financial Protection Bureau, the newly adopted rule lays out what lenders must do to ensure that borrowers can afford their mortgages. One of its main goals is to protect against the kind of underwriting that triggered the housing bust, when many borrowers took on risky loans they did not understand and had little to no hope of repaying. CFPB director Richard Cordray describes the new "common sense" rule as one that "ensures responsible borrowers get responsible loans." Consumer groups, though, complain that it affords lenders too much protection and fails to include adequate provisions to safeguard low-income borrowers. Alys Cohen of the National Consumer Law Center laments that it "invites abusive lending." Under the new rule, a qualified mortgage cannot contain such "risky" features as terms that exceed 30 years or negative-amortization payments where the principal amount increases. In addition, qualified mortgages cannot carry fees and points in excess of 3 percent of the loan; and they cannot be issued to borrowers who, once the mortgage is factored in, carry debt-to-income ratios above 43 percent. Observers say the guidelines will make it tougher for certain borrowers -- including wealthier buyers seeking interest-only financing and subprime buyers with poor credit -- to get loans.
- CFPB Readies New Mortgage Rules as Banks Seek More Time
Bloomberg Businessweek 07 Jan 2013
Banks such as PNC Financial Services Group Inc. and SunTrust Banks Inc. are asking the U.S. Consumer Financial Protection Bureau (CFPB) to give them a year to satisfy new mortgage underwriting rules. The rules, which require lenders to ensure a borrower’s ability to repay, will be announced in connection with a Jan. 10 hearing in Baltimore. The qualified mortgage rule, required under the 2010 Dodd-Frank Act, is intended to tighten the lax underwriting that contributed to the housing bubble and help protect consumers from unaffordable mortgages. The rules will require lenders to make efforts that include verifying income and assets and will provide lenders some protection from lawsuits. Seven regional banks have asked the CFPB that the rules be “sequenced” to minimize disruptions to the mortgage market. Dodd-Frank requires qualified mortgage rules and some of the servicing rules to be finalized by Jan. 21, 2013. Under the qualified mortgage rule that the CFPB discussed with other agencies, loans to borrowers whose debt was greater than 43 percent of income or who had non-prime interest rates would fall under a legal standard that gives borrowers or bondholders greater latitude to sue if a lender failed to sufficiently gauge repayment ability.
- Consumer Watchdog Readies to Bare Its Teeth
Wall Street Journal 02 Jan 2013
The Consumer Financial Protection Bureau (CFPB) enters 2013 poised to expand its reach. The CFPB spent last year working through a list of studies and rules required by Dodd-Frank, but now that it is freed from that to-do list, the agency could have greater latitude to focus on other areas of consumer finance. The bureau has about $44 million left from its $343 million 2012 budget, but its director's term expires at the end of 2013. The Obama administration will be tasked with garnering support for its CFPB nomination from Senate Republicans this go around after using a recess appointment for Richard Cordray. However, Cordray also must replace Deputy Director Raj Date, who is leaving at the end of January. If Cordray's reappointment is not supported by Senate Republicans this year, the new deputy director could become the CFPB's acting director at the end of the year. The agency is currently finalizing mortgage rules, and could then turn its focus to overdraft fees, debt collectors and credit-reporting firms, and student lending.
- Hard Part Just Starting for CFPB After Busy First Year
American Banker 31 Dec 2012
The new Consumer Financial Protection Bureau (CFPB) in 2012 finalized its first rule and took its first enforcement actions, but even greater challenges are ahead for the agency in 2013. These include finalizing new rules that address a large share of the market and increased enforcement against banks and nonbanks. The CFPB must finalize new mortgage rules by Jan. 21, including rules for "qualified mortgages," originator compensation, high-risk appraisals, and force-placed insurance. These are expected to alter access to credit and how mortgages are written. What is unclear is how the CFPB will define qualified mortgages and what kind of protection it will provide lenders that make qualified mortgages. Also coming next year is consolidation of the Truth in Lending Act and Real Estate Settlement Procedures Act forms. Aside from finalizing new rules, the CFPB will also increase its supervision and enforcement activities. Consultants have pointed out that the CFPB is bringing enforcement attorneys into an exam, a unique move among banking regulators. The agency probably will continue in-depth monitoring of third-party vendors. Experts are unsure what the bureau will target next, but they do note that the agency has undergone massive data collecting, including taking consumer complaints on financial products and data from credit-reporting agencies. CFPB leadership going into 2014 also remains a mystery, including who will succeed current deputy director Raj Date.
- CFPB: Bank of America Nets Most Mortgage Complaints by Sizable Margin
Reverse Mortgage Daily 26 Dec 2012
Data gathered by the Consumer Financial Protection Bureau reveals that Bank of America was the cause behind thousands of mortgage-related gripes referred to the agency. A total of 36,403 complaints in the category were fielded by the CFPB between July 21, 2011, and Sept. 30, 2012 -- 9,930 of them, or about 27 percent, naming BofA as the offending party. Most of the discontent had to do with mortgage workouts, collections, and foreclosures, followed by loan servicing, payments, and escrow issues and, to a lesser extent, application, originator, and mortgage broker problems. BofA generated nearly double the gripes as the Wells Fargo, which drew the second-highest number of complaints. Other big targets of consumer complaints were JPMorgan Chase, Citibank, and Ocwen.
- After Pushback, Rules Governing International Money Transfers Reworked
The Hill 22 Dec 2012
In the wake of industry resistance, the Consumer Financial Protection Bureau has revised one of its first initiatives on international money transfers. The regulator on Dec. 21 announced changes to its rules on remittances. The rules are meant to ensure that consumers maintain easy access to money transfers while enjoying sufficient protection from hidden fees and questionable terms. Industry participants, however, complained that the requirements presented an undue burden. In response, the CFPB is extending greater flexibility and clarity in terms of disclosing taxes and fees; it also said it would delay the effective date of the rule, which was originally set to take effect in February. "Today's proposal will ensure consumers have continued access to remittance transfer services while making compliance easier for remittance transfer providers," said CFPB director Richard Cordray.
- Obama Signs ATM, CFPB Bills
American Banker 21 Dec 2012
President Obama on Dec. 20 signed a measure freeing banks from having to post a placard on ATM machines notifying users of potential fees for non-consumers. A physical version of the warning had been required even in cases where it was posted electronically. Numerous banks faced frivolous litigation when scammers forcibly removed the bank signs and then sued for noncompliance. The new law affirms that physical signage no longer is warranted. Obama also endorsed legislation that will safeguard data that banks share with the Consumer Financial Protection Bureau. The measure allays industry concerns that information passed along to the regulator by banks could later be used against them in a future litigation.
- CFPB Seeking Comment on Future Card Rules
American Banker 20 Dec 2012
The Consumer Financial Protection Bureau on Dec. 19 opened up a 60-day comment period on future credit card rules. Specifically, it wants feedback on how the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 has affected consumers and the industry. The CFPB said the remarks on how cost and access to credit have changed, whether abusive or deceptive practices are still being used, and other aspects will help it with policy decisions down the road.
- Feds Launch Crackdown on Bad Debt Collectors
WKMG (Orlando) 19 Dec 2012
After Jan. 2, 2013, the Consumer Financial Protection Bureau (CFPB) will exercise new authority over about 175 of the nation's largest collection agencies. Investigators from the regulator will carry out on-site inspections to verify that the firms are adhering to the Fair Debt Collection Practices Act. The added oversight comes after thousands of consumers have complained of aggressive and threatening telephone messages from debt collectors. In 2011, the Federal Trade Commission received 150,000 consumer grievances tied to the industry. As an example, it cites one case where a Florida woman, late in paying a $200 phone bill, received calls at all hours of the night. Some were insulting, including a message left that she should change her surname to "Debtor." "Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," said CFPB director Richard Cordray.