CFPB Report - October 23, 2015

Bureau's Consumer Advisory Board Talks LEP Consumers, Arbitration
On Thursday, October 22, 2015, the CFPB Consumer Advisory Board met to discuss ways to serve limited English proficiency (LEP) consumers and the agency's recent arbitration actions. The Bureau indicated its Education and Engagement Division published a Glossary of Financial Terms and Newcomer Guides in different languages to help LEP consumers and those new to the United States understand the financial marketplace. The Division recently completed studies to identify and understand challenges in financial education practices.
 
The CFPB explained its recent actions and next steps in the arbitration rulemaking process. In his remarks, CFPB Director Richard Cordray indicated the Bureau is considering banning pre-dispute class action arbitration agreements and requiring "companies to send to the Bureau all claims made by or against them in consumer financial arbitration disputes and any written awards that stem from those filings." 
 
CFPB Releases Financial Education Curriculum
On Wednesday, October 21, 2015, the CFPB released a tool intended for educators to use when selecting financial education curriculum for students. The curriculum review tool is intended to help educators identify effective and unbiased material to increase the financial capability of students. By providing relevant evaluation criteria, the tool can help educators judge the value of financial education material for their students.
 
"Helping young people develop their financial capability early will prepare them for important financial decisions they will face in the future," said Director Cordray. "The curriculum review tool we are releasing today will help educators determine which financial education curriculum best suits their students."
 
CFPB Comments on TRID Compliance
On Monday, October 19, 2015, Director Cordray expressed frustration with mortgage software venders for hindering the ability of mortgage lenders to comply with the newly promulgated TILA/RESPA Integrated Disclosure (TRID) requirements. "Some vendors performed poorly in getting their work done in a timely manner," and "unfairly put many [lenders] on the spot" around the time of the October 3 mortgage-disclosure deadline," Director Cordray said. The remarks have invited speculation about whether a crackdown on mortgage-technology vendors is forthcoming.

FDIC Adopts Plan to Increase Deposit Insurance Fund
On Thursday, October 22, 2015, the FDIC approved a proposal aimed at increasing the Deposit Insurance Fund (DIF) to 1.35 percent, the minimum level allowed by Dodd-Frank. The rule would impose a 4.5-cent surcharge per $100 of the assessment base on banks with at least $10 billion in assets. Exempting the first $10 billion of the assessment base, the surcharge applies to every dollar above $10 billion. Set to begin in 2016, the FDIC anticipates the surcharges will be in place for two years. The agency is accepting comments on the proposal due 60-days after the proposal's publication in the Federal Register.

Senate Considers Cybersecurity Information Sharing Bill
This week, the Senate is considering the Cybersecurity Information Sharing Act (CISA), S.754. CBA sent a letter to Senate leadership supporting the bill and requesting the Senate also consider data security legislation: "Despite the alarming rise in the number and sophistication of cyber threats, a federal standard to protect consumer data across the payment system currently does not exist. With the recent data security breaches at major retailers and others that have put millions of consumers at risk, the need to pass legislation to establish such a standard could not be more evident. The undersigned groups stand in support of S. 754 as well as meaningful data security and breach notification legislation, such as S. 961. The passage of these legislative measures would demonstrate the Senate's strong commitment to better protecting consumers and businesses from the scourge of cyber threats and data breaches."

House Small Business Committee Examines EMV Transition
On Wednesday, October 21, 2015, the House Small Business Committee held a hearing entitled: "The EMV Deadline and What it Means for Small Businesses: Part II." On October 7, 2015, the Committee heard from financial transaction providers on the EMV chip payment system and the ongoing nationwide implementation which began on October 1, 2015. The second hearing follows this month's deadline for merchants to install chip-card readers or face increased fraud liability if a chip card is used in a non-chip reader.
 
CBA sent a letter to the members of the Small Business Committee before the hearing, stating: "The 'PIN argument' is a smokescreen used by retail trade groups to deflect attention from the high profile retail data breaches at big box stores over the past few years and their underlying causes. Rather than coming together to improve internal data security practices, the retail trades are fixating on a PIN technology that fights a small and declining share of today's fraud and which would have been meaningless in breaches like those at Target and Home Depot. The reality is that if a merchant is EMV enabled and has their card readers turned on, they have the same protections whether PIN is used or not. Instead of fighting, we should embrace ideas like H.R. 2205, the Data Security Act of 2015, introduced by Representatives Randy Neugebauer (R-TX) and John Carney (D-DE), to apply meaningful and consistent data protection for consumers nationwide."
 
The hearing featured testimony from small businesses about the challenges and implications of the transition. Keith Lipert, owner of The Keith Lipert Gallery, a single-location, three-employee store in Washington testified on behalf of the National Retail Federation. "The EMV transition is overwhelming and expensive for an independent, small retailer," he said. With each chip card terminal costing as much as $2,000 including installation, software and other expenses, Lipert said the price is "extremely high." And without PIN, "it makes little sense in any serious customer protection or basic return-on-investment analysis."

Curry Concerned about Auto Loans
On Wednesday, October 21, 2015, during his remarks at a Washington event, Comptroller of the Currency Tom Curry indicated the performance of auto loans is a matter of concern to regulators and the market has parallels to what preceded the last global financial crisis. Curry said auto lending represents a growing share of retail credit at national banks. These institutions are increasingly packaging the loans into asset-backed securities instead of holding them in a portfolio.
 
"These securities are being greeted by strong demand from investors, who no doubt remember that securities backed by auto loans outperformed most other classes of asset- back securities during the financial crisis," Curry said. "But what is happening in this space today reminds me of what happened in mortgage- backed securities in the run-up to the crisis. With...longer terms, borrowers remain in a negative equity position much longer, exposing lenders and investors to higher potential losses," he said.
 
CBA President and CEO Richard Hunt countered the Comptroller's remarks in a statement, citing the prudent underwriting standards applied by lenders.

Members Concerned about Fed Dividend Funding Source
On Tuesday, October 20, 2015, Congressman Bill Huizenga (R-MI) and Congressman Bill Foster (D-IL), with 147 members, led a bipartisan letter to Speaker John Boehner (R-OH), Majority Leader Kevin McCarthy (R-CA), Minority Leader Nancy Pelosi (D-CA), and Minority Whip Steny Hoyer (D-MD), requesting further review of a a controversional Fed Divident funding source for a six-year highway funding bill.  The bill, which passed the Senate in July of 2015, included a reduction in the annual Fed dividend banks receive from the Federal Reserve from 6 percent to 1.5 percent. This percentage drop resulted in a $17 billion pay over ten years.
 
"We believe that any potential modifications to the current stockownership structure of the Federal Reserve Banks should be thoroughly studied and analyzed to help ensure that Congress understands the policy implications of any changes. In fact, when testifying before the Senate Banking Committee in July, Federal Reserve Chair Yellen stated that the change 'could conceivably have unintended consequences' and that 'it deserves some serious though and analysis.' Consistent with that, the Chairman of the Financial Services Committee has written to the Government Accountability Office (GAO) to request a study of the policy, the historic rationale for requiring member banks to hold Federal Reserve Bank stock, the federal budgetary implications of reducing the six percent dividend rate, and broader questions such as whether member bank ownership of Federal Reserve Bank stock should be voluntary rather than mandatory and whether the stock itself should be permanently retired." The lawmakers added, until the work at GAO is completed and after committees of jurisdiction have the opportunity to review the policy, the signed members "believe that changes to the Federal Reserve dividend rate are premature."