Read the latest on the Consumer Financial Protection Bureau (CFPB).
- New Oversight for Nonbanks
Philadelphia Inquirer 14 Aug 2011
Financial woes resulting from the practices of nonbank financial institutions have long plagued consumers but have been out of the reach of most federal and state regulatory agencies. There is good news for consumers who once saw their only course of action as contacting lawyer; it comes in the form of the new Consumer Financial Protection Bureau. The agency has begun implementing various parts of the Dodd-Frank financial legislation and is considering whether to begin supervising credit reporting, debt collection, the prepaid-card industry, loan servicers, check cashers, debt-relief services, money transmitters, and other nonbank financial services. Many of these nonbank entities shouldered much of the blame for the housing bubble and the 2008 financial crisis it spurred, necessitating new oversight. To prevent a repeat of the events that lead to the Great Recession, Congress created the bureau and instructed it to extend the kind of oversight already directed at banks to nonbanks -- specifically to payday lenders, mortgage lenders, and private education lenders, but also to other "larger participants" in the financial markets. The bureau is hoping to level the playing field, and it will work to address the various pitfalls that plague the financial system. The key to its power is the authority it has to supervise and examine a nonbank financial institution, which will make the bureau much better suited to understand how the institution functions and determine what kind of consumer protection is needed. The CFPB has promised to make consumer protection a priority.
- Don't Forget About the Under-Banked Consumer
The Hill 10 Aug 2011
Drew Edwards, CEO and founder of Chexar Networks, Inc., says in this blog posting that banks historically have been unwilling to change their product offerings to meet the legitimate needs of the underbanked -- a massive consumer group -- by adding services such as check cashing, money transfers, walk-up bill payments, and prepaid Visa/MasterCard debit cards. Now, banks are growing more and more focused on redefining their product set to meet the needs of these consumers by offering them the services they are purchasing today at the corner check casher or store. This change in mentality has been driven by recent legislative changes in Washington that will significantly lower the fee income these banks generate from deposit accounts, debit cards, and credit cards. Forced to re-examine their fee income models, banks have spent the past year performing internal analysis that has helped them to realize that as much as 25 percent of their current deposit account holders are actually going outside the bank to procure these services.
- The $169 Billion Hidden Market: People Without Banks
Strategy+Business 05 Aug 2011
According to FDIC data, an estimated $169 billion in income never flows through a bank or credit union. For years, banks have experimented with winning over "bottom of the pyramid" consumers in the U.S., and many have concluded that the effort was too risky and not lucrative enough. However, researchers from the University of Virginia Darden School of Business spent a year studying the issue and conclude that some different approaches could prove more successful in attracting deposits from the millions of households that have no relationship with a bank or credit union. The rapidly growing Latino population is particularly underserved, the researchers say. Several factors make the Latino population particularly attractive. Many Latino households feature more than one adult generating income, and the group's workforce participation is high. While some unbanked Latinos are undocumented aliens who would have trouble opening an account without a Social Security number, many others are just put off by deposit requirements and language barriers, and turn instead to check-cashing stores and payday lenders that cost more to use. Banks and credit unions could hire more employees who speak Spanish, educate staff members on cultural issues, and help customers with paperwork. Banks could also offer incentives to employers to bring staff members to the bank, or hold "sign-up" days in workplaces during which the benefits of banking — especially the absence of check-cashing fees — are promoted. Finally, the researchers argue that bank managers should get out the message that bringing large numbers of unbanked households into the system lowers the risk of crime. Because unbanked consumers carry cash or keep it at home, they are often the victims of violent robberies.
- House Republicans Block Recess Appointments by Obama
Los Angeles Times 04 Aug 2011
The Senate adjourned for more than a month without going into a formal recess, after congressional Republicans used procedural moves to block President Barack Obama from temporarily appointing heads to the new Consumer Financial Protection Bureau (CFPB) and other agencies through so-called recess appointments. The Senate cannot go on a formal recess without approval from the House, and the GOP majority there again has blocked one. In addition to the vacant director slot at the consumer agency, Obama would like to install nominees to head the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and numerous department and federal judicial posts. The most high-profile position Obama would like to fill is director of the CFPB -- the position for which he nominated former Ohio Attorney General Richard Cordray, who faces strong resistance from nearly all Senate Republicans. They vowed to block any nominee to head the agency unless Obama agrees to dilute its power. Until the consumer agency has a Senate-confirmed director or one put in place by a recess appointment, it cannot use some of the authority granted to it by last year's financial reform law. Those delayed powers include regulation of mortgage brokers, payday lenders, and other financial institutions outside the banking system. The Treasury Department is running the agency until it has a director.
- Consumer Financial Protection Bureau: We Won't Hurt Small Business
Knoxville News-Sentinel 01 Aug 2011
As part of their ongoing efforts to limit the Consumer Financial Protection Bureau's power, Republicans in Congress are warning that the agency could hurt small businesses. Last week, a congressional subcommittee grilled Dan Sokolov, deputy director of the bureau's research department, on whether the new agency will hurt the ability of small businesses to offer consumers credit and obtain credit themselves. Sokolov said the Dodd-Frank financial reform act specifically limits the new agency to regulating only large banks, as well as the largest companies in non-bank financial sectors like payday lenders and prepaid debit cards. The law specifically bars the CFPB from writing rules concerning small companies like car dealers; and while the bureau's rules will apply to community banks, it is not allowed to bring enforcement actions against them. The bureau is focused "on financial products and services for consumers," Sokolov testified. "The [CFPB] does not have jurisdiction over small business credit except in limited cases where Congress has explicitly and affirmatively granted the Bureau such jurisdiction."
- Senate Banking Panel to Hold CFPB Nominee Hearing
Reuters 28 Jul 2011
The Senate Banking Committee will convene a hearing on Aug. 4 on the nomination of Richard Cordray to lead the new Consumer Financial Protection Bureau (CFPB). Earlier in July, President Obama nominated Cordray, a former Ohio attorney general, to be the first director of the agency. Republicans, however, have vowed to block Cordray from being confirmed unless revisions -- which Democrats oppose -- are made to the bureau's structure. Republicans want the CFPB's leadership to be changed to a board rather than a sole director, the budget to be subject to congressional approval, and other financial regulators to be given a bigger voice in the CFPB's oversight of banks. Until the agency has a director in place, it cannot police non-bank entities such as payday lenders.
- US Watchdog Report: Treasury Not Doing Enough to Punish Poorly-Performing Mortgage Firms
Fox Business 28 Jul 2011
In a quarterly report, an independent federal watchdog challenged whether the Obama administration has done enough to punish mortgage firms for poor performance in its Home Affordable Modification Program (HAMP). The Special Inspector General for the Troubled Asset Relief Program said it supported the Treasury Department's decision to punish mortgage companies for poor performance under the initiative, but questioned whether enough companies had been punished. The office has long been critical of how the administration has run the program, which fell short of initial expectations. In June, the Treasury decided to withhold millions of dollar in fees from Bank of America, Wells Fargo, and JPMorgan Chase. However, the inspector general's report pointed out that other companies had also fared poorly with HAMP. The program was announced in 2009 with a goal of assisting 3 million to 4 million homeowners in saving their homes and obtaining permanent loan modifications. However, as of May 2011, it has only helped 633,500 borrowers.
- Consumer Bureau Plans Enforcement Based on FTC's 'Stable' Model
Bloomberg 28 Jul 2011
The Consumer Financial Protection Bureau plans to follow enforcement procedures "based largely on the existing, stable model" used by the Federal Trade Commission, according to a document on the bureau’s Web site outlining how it will seek documents, conduct hearings, and deal with witnesses. The rules track what the FTC already does, so "they present an existing, stable model of investigatory procedures that should not impose new compliance costs," the bureau says in the document. The posted rules by themselves give little insight into how forceful the CFPB will be in dealing with lenders, according to Howard Beales, a former FTC official who is now professor at George Washington University in Washington. "This says what the framework for enforcement is," Beales explains. "It says nothing about the mix between supervision and enforcement." Peggy Twohig, the bureau’s assistant director for non-bank supervision, and Steve Antonakes, the assistant director for large-bank supervision, have hinted that the agency may rely heavily on supervision. The bureau also posted rules similar to those used by prudential regulators governing how it will conduct reviews in which firms can contest administrative penalties.
- House Votes to Overhaul Consumer Agency
Washington Post 21 Jul 2011
The U.S. House approved legislation in a vote of 241-to-173 that would strengthen the veto power of the Financial Stability Oversight Council over the Consumer Financial Protection Bureau's (CFPB) decisions, install a five-member commission to replace the single director as the head of the bureau, and delay the transfer of powers from other federal agencies. The measure also calls for the bureau to be subject to congressional appropriations. However, the legislation is unlikely to pass the U.S. Senate. The CFPB opened for business on July 21 without a director, though the Obama Administration has nominated former Ohio Attorney General Richard Cordray. Senate Republicans have said they will continue to block any nominee until the agency's structure is modified. Without a director, CFPB cannot write many new rules and it lacks the authority to oversee payday lenders and check cashers. The agency is expected to consolidate the consumer protection powers of seven government agencies and to focus on transparency, disclosures, and protection against unfair, deceptive, or abusive practices. CFPB is currently accepting complaints from consumers about credit cards, and the agency is prepared to begin work, says White House Advisor Elizabeth Warren. Moreover, a recent study reveals that 63 percent of voters favor greater oversight of financial firms and nearly 75 percent of respondents favor a single agency tasked with consumer protection.
- Delay in U.S. Consumer Bureau Authority Spares Non-Bank Lenders
Reuters 21 Jul 2011
A deadlock between Republicans and the White House over the Consumer Financial Protection Bureau's structure and director nominee are preventing the agency from regulating payday and other non-bank lenders. Republicans have said they will block any CFPB director nominee until the bureau is modified and, without a director, the watchdog is unable to regulate non-bank lenders. Such firms insist that they have a other regulations to keep them in check, including the Truth in Lending Act and the Real Estate Settlement Procedures Act, and that they are shoring up their disclosure standards. But Jean Fox of the Consumer Federation of America says she sees no evidence that payday lending products are being modified ahead of potential CFPB action. She concedes that tougher state regulations have prompted the industry to make some changes but says lenders recovered the cost of lost revenues and profits through fees. "The net effect has been zero," according to Fox.
- New Consumer Bureau Wants Your Credit Card Complaints
New York Times 21 Jul 2011
The new federal Consumer Financial Protection Bureau (CFPB) is officially open and fielding consumers' credit card grievances. The CFPB Web site has an easy-to-use interface where consumers enter their names, contact information, and the nature of the problem. The site offers a place for users to type in their complaint as well as pull-down menus. Complaints are forwarded to the credit card company once received. Additionally, the site has an online chat feature, for those who require assistance from a bureau employee. While the agency says consumers do not have to enter their credit card numbers, it also says that providing that information is the most expedient way of completing the complaint and "moving forward." Once a claim is submitted, an investigator with the CFPB will contact the consumer and explain the process going forward.
- White House Threatens Veto of GOP Bill Curbing Consumer Bureau Powers
The Hill 20 Jul 2011
On July 20, the White House announced that it would veto Republican attempts to curb the Consumer Financial Protection Bureau (CFPB), saying those attempts would "expose American consumers and the nation's economy to the same risks that led to the 2008 financial crisis." The CFPB, set to begin work on July 21, remains a target of Republican criticism, with charges that it is too powerful and subject to too little oversight. U.S. House Republicans will put forward a bill that would make three significant changes to the bureau's operation: establish a five-person commission at the top of the CFPB; prevent the CFPB from assuming transferred powers from other regulators without a confirmed director in place; and make it easier for the Financial Stability Oversight Council to overturn CFPB rules.
- GOP Blocks Cordray, Limits CFPB
Roll Call 19 Jul 2011
On July 18, U.S. Senate Republicans rejected President Barack Obama's nomination of former Ohio Attorney General Richard Cordray as the head of the Consumer Financial Protection Bureau (CFPB), and their efforts to block the nomination could hamper the authority of the new agency. Some had hoped that Cordray would have received a warmer reception from Republicans that White House Advisor Elizabeth Warren would have, but Republicans continue to insist that any nominee will be blocked until changes are made to the structure of the agency. U.S. Senate Banking Committee Ranking Member Richard Shelby (R-Ala.) said, "For months he has ignored Republican concerns about the lack of accountability at the [CFPB] and its potential adverse effect on the economy. Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it. No accountability, no confirmation." Republicans contend that the agency has too much "unchecked" power, and blocking nominees to lead the agency effectively ties the hands of the agency, ensuring it is unable to regulate non-banking firms like payday lenders and student loan providers. The Obama Administration has not reached out to Shelby or other Republicans blocking the nomination, and it is unclear if the administration is considering a recess appointment to sidestep the Senate confirmation process. Democrats and the administration could try to break through the Republican blockade on the nomination by pushing U.S. Sen. Rob Portman to support confirmation for his fellow Ohioan Richard Cordray.
- Consumer Watchdog on a Shorter Leash
Chicago Tribune 19 Jul 2011
As a result of political gridlock and partisan battles, the Consumer Financial Protection Bureau (CFPB) will launch on July 21 without an appointed director, meaning it will not be quite as aggressive as promised. Absent a director, the agency will not be able to crack down on mortgage brokers, nor will it have authority over payday lenders and remittance companies. President Barack Obama has nominated former Ohio Attorney General Richard Cordray to head the agency, but Republicans say they will oppose any nominee until key changes are made in the planned structure of the agency. The leaderless agency initially will be denied broad authority to prohibit "unfair, deceptive or abusive acts or practices" or to issue rules requiring better disclosures of the terms of financial products. However, the bureau will immediately take over the authority to enforce 18 existing consumer protection laws. Nearly every Republican in Congress and banks across the nation opposed the creation of the CFPB, arguing it would restrict access to credit. Meanwhile, the idea was quickly embraced by Obama and consumer advocates. The bureau likely will be able to run for a short time without an appointed director, but that will slow it from addressing long-standing problems, according to Travis Plunkett, legislative director for the Consumer Federation of America.
- New Poll Demonstrates Broad Support for Financial Reform
Sacramento Bee 19 Jul 2011
Regardless of political party affiliation, the vast majority of Americans support strong, reasonable oversight of the financial services industry -- including an independent Consumer Financial Protection Bureau with teeth -- finds a new poll. By a margin of 3-1, Americans want financial companies held accountable and financial reforms to take effect as soon as possible. And they want the CFPB to be up and operating as planned, not watered down by industry's current attempts to weaken its funding and setup. The poll -- carried out by Lake Research Partners and sponsored by AARP, the Center for Responsible Lending, and Americans for Financial Reform -- found that voters across party lines solidly favor the Wall Street reform law; favor a single U.S. agency with the sole mission of safeguarding the public from unscrupulous financial practices and predatory products; and believe safeguards will help restore the economy and not hinder it, as some on Wall Street claim. CRL President Mike Calhoun said, "Everyday Americans know what's good for their pocketbooks, their families, and our economy -- that's why a large, bipartisan majority is calling for financial reforms to take effect. Let's hope policymakers hear them loud and clear."
- Bank Challenger Picked to Run Consumer Agency
Wall Street Journal 18 Jul 2011
President Barack Obama indicated on July 17 that he would nominate former Ohio Attorney General Richard Cordray as head of the Consumer Financial Protection Bureau (CFPB). As Ohio attorney general, Cordray challenged banks over mortgage foreclosure practices, but his nomination is likely to be opposed by U.S. Senate Republicans and the financial services industry. Currently, Cordray is the top enforcement officer at the CFPB. The administration concluded that Harvard Law Professor and current White House Special Advisor to the CFPB Elizabeth Warren would not win confirmation from the Senate, but Senate Republicans already have said they would block any CFPB nominee unless the agency's structure is changed. "Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it. No accountability, no confirmation," said U.S. Sen. Richard Shelby (R-Ala.). The administration said it would be willing to consider some changes to the bureau, but it would not support the replacement of the directorship with a five-member commission. Meanwhile, Warren applauded the nomination, "Rich has always had my strong support because he is tough and he is smart -- and that's exactly the combination this new agency needs." If Cordray is confirmed, he will likely take a strong stance against fraudulent and abusive practices among financial firms. U.S. Rep. Carolyn Maloney (D-N.Y.) says of Cordray, "While I am disappointed that Elizabeth Warren won't be at the top of the agency she envisioned, Cordray was one of her first hires as its director of enforcement, and was by all accounts a smart and tough attorney general in Ohio."
- Consumer Financial Protection Bureau: Please Ban These Four Products!
CBS MoneyWatch 17 Jul 2011
MoneyWatch columnist Marlys Harris was disappointed by Elizabeth Warren's recent statement that the new Consumer Financial Protection Bureau would not seek to ban products. Instead, Warren called an outright ban "a tool in the toolbox" and stressed that "that's where it should stay." Harris assumes Warren is making attempts to appease CFPB opponents; but Harris argues that limiting consumer choice is not always a negative course of action, because there are some toxic items that should never be on the market. She likens taking these products off the market to the government's regulation of rotten meat, calling out rotten products such as payday loans, negative amortization mortgages, credit card debt protection programs, and negative option marketing. Payday loans, according to the Center for Responsible Lending, create spirals of debt for many consumer who cannot repay a loan after two weeks and are forced to renew. Repeated rollovers and exorbitant interest rates make payday loans unproductive and toxic. Negative amortization mortgages -- popular during the housing boom -- do not cover the amount of principal and interest due, which means a homeowner's mortgage balance rises over the years even as their equity decreases. These loans do not make sense for borrowers or lenders. Another toxic product resulting in high fees is a credit card debt protection program, which supposedly promises to cancel a credit card balance or suspend the minimum monthly payment and waive interest should a consumer die, become disabled, or lose their job. Harris says the last of the four toxic products -- negative option marketing, whereby a vendor fraudulently signs customers up and bills them for a subscription or membership club, after obtaining their credit card number from a valid phone or online purchase -- is essentially fraud.
- Warren: No Plans for Bans
Wall Street Journal 15 Jul 2011
Speaking before the U.S. House Oversight and Government Reform Committee, White House adviser Elizabeth Warren said that the new Consumer Financial Protection Bureau (CFPB) will not seek out bans for certain financial products, though the agency does have the ability to do so. "We don't have any present plans [to use that tool,]" she said. GOP lawmakers continued to press Warren on how the agency would regulate financial products, including whether it would ban payday loans and cap interest rates or oversee auto loans and insurance products. Warren indicated that the CFPB has "limited" power over business credit cards, and according to Dodd-Frank, the agency cannot cap interest rates. On July 21, the agency will inherit the consumer protection authority of the U.S. Federal Reserve, Federal Trade Commission, and other agencies, and the agency will be allowed to write new consumer protection laws and supervise financial firms to ensure products they offer do not harm consumers.
- Fed's Raskin: Consumer Protection to Remain Vital Role for Fed
iMarketNews.com 29 Jun 2011
Federal Reserve Gov. Sarah Bloom-Raskin on June 29 said that consumer protection will always play an instrumental part in the central bank's assessment of how the U.S. economy is progressing. According to her, consumer protection is essential to a growing and flourishing economy. Raskin also noted that traditional banking services no longer meet the needs of many Americans, which has created a space for non-conventional financial firms. Links between consumer spending, consumer finance, and consumer protection to the economy "are of critical importance and will always have to be at the forefront of what the Federal Reserve always thinks about," she explained. Raskin added that it is important to foster innovation within the new Consumer Financial Protection Bureau while also making sure that financial products have a "sufficiently robust" regulatory structure around them. She said the goal is to have a regulatory system that does not choke off financial innovation but encourages those features that will benefit consumers. Many of the traditional banking services are not working for a large number of Americans, leaving large gaps in which products can be developed. "And as they evolve, we obviously want to give them space to evolve but we want to keep an eye on them," she added. The idea is not to impede the emergence of new strategies but to harness their positive aspects and "prohibit, limit or regulate" the more risky side.