CFPB Report April 11, 2014

Chairman Threatens CFPB Subpoena for Discrimination Investigation

On Thursday, April 10, 2014, Chairman of the House Financial Services Subcommittee on Oversight and Investigation Patrick McHenry, sent a letter to CFPB Director Cordray informing him of the Committee’s plans to hold additional hearings on allegations of discrimination at the CFPB. Rep. McHenry cautioned that should Director Cordray not authorize CFPB witnesses to testify by April 15, 2014, they will be compelled via the Committee’s subpoena authority.

 

CFPB Announces Financial Education Partnership with Libraries

On Monday, April 7, 2014, the CFPB announced a partnership with public libraries to offer additional sources for financial education information and resources in communities. The Community Education Pilot Project’s five-point strategy includes:

  • Providing librarians with a reliable set of financial resources and programming suggestions;
  • Helping libraries identify and connect with local partnering organizations;
  • Building an online community for financial education librarians;
  • Providing marketing support for library programs; and
  • Offering online and in-person training for librarians.

Bipartisan Bill for CFPB Small Business Advisory Board Introduced

On Thursday, April 3, 2014, Congressmen Robert Pittenger (R-NC) and Denny Heck (D-WA) introducedH.R. 4383, a bill to provide for a Small Business Advisory Board at the CFPB. The Bureau of Consumer Financial Protection Small Business Advisory Board Act would require the CFPB to create a body to advise and consult the Bureau on its functions under Federal consumer financial laws and provide information on emerging practice of small business. Its membership would meet twice annually, and include no fewer than 12 persons appointed by the CFPB Director. The Board would operate in a similar capacity to the CFPB’s existing advisory boards, which include the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council.

 

“This common sense, bipartisan legislation will give small business owners a seat at the table,” said Congressman Pittenger.



CBA Weighs in on DOE Rulemaking

 On Wednesday, April 2, 2014, CBA and the American Bankers Association (ABA) submitted a letter to the U.S. Department of Education (DOE) expressing concerns with ongoing negotiated rulemaking: Title IV Program Integrity and Improvement. CBA and ABA urged the DOE to reconsider the current language of its rule due to the chilling effects it will have on Title IV student loan refund disbursement programs, as well as all banking products and services associated in any way with a student customer.

 

The DOE’s negotiated rule making is scheduled to enter its third and final negotiation April 23 – 25, 2014. A final proposal is expected in June 2014, and a final rule will likely become effective in July of 2015. The CBA/ABA Campus Product Working Group will continue to address concerns with the DOE and other policymakers as the process moves forward.



Senate Banking Committee Members Introduce Bill on Card Fraud Liability

On Tuesday, April 1, 2014, Senators Mark Warner (D-VA) and Mark Kirk (R-IL) introduced the Consumer Debit Card Protection Act of 2014 (S. 2200), which would align the fraud liability between credit and debit cards by providing debit card holders with consumer protections equivalent to those available to credit cards.

 

“Debit cards are used in much the same way as credit cards, so it makes no sense for credit card fraud liability to be capped at $50 while debit cardholders can find themselves on the hook for $500 or more,” said Senator Warner in a press statement. "In light of the millions of consumers who have had their financial information stolen during one of the recent data breaches, Sen. Warner and I will continue to take data security and the importance of consumer protections very seriously," Senator Kirk said in amedia release.



Banking Regulators Issue Final Regulatory Capital Rules

On Tuesday, April 8, 2014, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) adopted afinal rule intended to strengthen the agencies' supplementary leverage ratio standards for large, interconnected U.S. banking organizations. The final rule applies to any U.S. top-tier bank holding company (BHC) with more than $700 billion in total consolidated assets or more than $10 trillion in assets under custody (covered BHC) and any insured depository institution (IDI) subsidiary of these BHCs.

 

In the revised regulatory capital rule adopted by the agencies in July 2013, the agencies established a minimum supplementary leverage ratio of 3 percent, consistent with the minimum leverage ratio adopted by the Basel Committee on Banking Supervision (BCBS), for banking organizations subject to the agencies' advanced approaches risk-based capital rules. The final rule establishes enhanced supplementary leverage ratio standards for covered BHCs and their subsidiary IDIs. Under the final rule, an IDI that is a subsidiary of a covered BHC must maintain a supplementary leverage ratio of at least 6 percent to be well capitalized under the agencies' prompt corrective action (PCA) framework. The Board also adopted a supplementary leverage ratio buffer (leverage buffer) for covered BHCs of 2 percent above the minimum supplementary leverage ratio requirement of 3 percent. The leverage buffer functions like the capital conservation buffer for the risk-based capital ratios in the 2013 revised capital rule. A covered BHC that maintains a leverage buffer of tier 1 capital in an amount greater than 2 percent of its total leverage exposure is not subject to limitations on distributions and discretionary bonus payments under the final rule.

 

The agencies also proposed changes to the 2013 revised capital rule's supplementary leverage ratio, including changes to the definition of total leverage exposure, which would apply to all advanced approaches banking organizations and thus, if adopted, would affect banking organizations subject to this final rule. The final rule is effective January 1, 2018.



House Financial Services Committee Holds Hearing on Regulatory Relief

On Tuesday, April 8, 2014, the House Financial Services Committee held a hearing entitled: “Who’s in Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom.” The widely attended hearing addressed topics including ‘Operation Chokepoint,’ indirect auto lending, treatment of collatorized loan obligations under the Volcker Rule, and proposals to broaden opportunities to advise the CFPB on policy matters. Access to credit under the new mortgage rules was also convered, as well as a continuation of dialogue from the April 2, 2014 hearing examining employee discrimination at the CFPB. Witnesses included: 

CBA submitted a letter for the record to the Committee, emphasizing the need for short term liquidity products such as Deposit Advance. Other key concerns were raised, including student loans, the CFPB’s approach to regulating automotive financing, and the Bureau’s request to collect HMDA-like details for small business credit applications under Section 1071 of the Dodd-Frank Act.

 

In his opening statement, Committee Chairman Jeb Hensarling (R-TX) stated: “The Federal Reserve now reports that one-third of Black and Hispanic borrowers would be hurt by the qualified mortgage rule. In the American Bankers Association's most recent lending survey of banks, one-third of respondents say they plan to reduce their mortgage lending only to QM loans. Perhaps this is why QM is rapidly becoming known as the quote, quitting mortgages rule.”

 

Committee Ranking Member Maxine Waters (D-CA) stated: “I find it ironic that we are participating in a hearing to examine government so-called red tape while many of my Republican colleagues are pushing measures that would only serve to increase it. It is unfortunately that this committee continues to consider these measures, which are becoming a not-so-veiled effort to roll back the significant accomplishments of the Dodd-Frank Wall Street Reform Act, while ignoring a number of important policy matters that need our attention now.”

 

Chairman Hensarling continued to pressure the CFPB about the Bureau’s March 2013 indirect auto lending bulletin. CFPB General Counsel, Meredith Fuchs, responded by saying, “there is not a one-size fits all process to make public.” On April 2, 2014 at CBA LIVE, CFPB Deputy Director Steve Antonakes,announced the Bureau will soon begin rulemaking for nonbank lenders.

 

The U.S. Department of Justice’s (DOJ) plan to stifle illegal operations by payday lenders, dubbed ‘Operation Chokepoint,’ was a major point of discussion, garnering some bipartisan concern when phrased as an issue of access to credit for consumers with imperfect credit scores in need of short-term liquidity. Congressman Gregory Meeks (D-NY), the Ranking Member of the Financial Institutions and Consumer Credit Subcommittee cited a story in his district where a bank felt compelled to end a longstanding and legal relationship with a check casher because of increased regulatory scrutiny. Witnesses generally restated third party relationship guidance and reminded the Committee ‘Operation Chokepoint’ is a DOJ effort.

 

CBA submitted joint testimony on ‘Operation Chokepoint,’ noting aggressive enforcement tactics may increase costs for consumers; close access to the financial system to lawful business; and may disrupt the growth of e-commerce. In addition to CBA, the letter was signed by the Credit Union National Association, the Electronic Funds Transfer Association, The Electronic Transactions Association, the Independent Community Bankers of America, the National Association of Federal Credit Unions, and the Third Party Payments Processors Association.



Pew Releases Report on Checking Account Practices

On Wednesday, April 9, 2014 the Pew Charitable Trusts released a report entitled: “Checks and Balances: 2014 Update,” evaluating “best” and “good” practices at 44 of the 50 largest banks across three categories: disclosure, overdraft, and dispute resolution.

Pew defined best practices as disclosed terms which are the most effective in:

  • Providing checking accountholders with clear and concise disclosure about fees and terms;
  • Reducing the incidence of overdrafts and eliminating practices that maximize overdraft fees; and
  • Offering consumers a meaningful option to resolve a problem with their bank in court or by choosing arbitration rather than requiring consumers to agree before a dispute arises to go through the arbitration process.

According to Pew, many bank ordering practices continued to impose significant overdraft risks for consumers. As such, more than half of the banks reviewed reportedly continued to reorder account postings from high-to-low, increasing the opportunity for overdrafts.

 

As in last year’s report, Pew provided the following policy recommendations to the CFPB: 

  • Summarize key information about terms and fees in a concise, uniform format;
  • Provide account holders with clear, comprehensive terms and pricing information for all available overdraft options;
  • Make overdraft penalty fees reasonable and proportional to the financial institution’s costs in providing the overdraft loan;
  • Post deposits and withdrawals in a fully disclosed, objective, and neutral manner which does not maximize overdraft fees; and
  • Prohibit pre-dispute mandatory binding arbitration clauses in checking account agreements, which prevent account holders from accessing courts to challenge unfair and deceptive practices or other legal violations.

“Checking accounts are a fundamental tool for managing money and they need to be safe and transparent,” said Susan Weinstock, Director of Pew’s Safe Checking Project, in a press statement. “Consumers should have strong protections no matter where they bank. We urge the Consumer Financial Protection Bureau to make fair checking account practices a priority by issuing new rules.”

 

Pew did give banks credit for adopting clearer checking account disclosure practices, including increased transparency of overdraft policies. They cite forty-three percent of the banks studied have adopted a summary disclosure box of terms and fees that meets all of Pew’s criteria.